It seems barely a day goes by without the impact of Brexit on the UK economy hitting the news. While most agree that the historic vote in June will have major repercussions for the UK, opinion remains divided on what this might look like, with “uncertainty” the watch-word, especially in recruitment circles.
In the immediate aftermath of the leave vote, global stock markets lost $2 trillion, the FTSE lost £100bn in two days and the pound slumped to a 31 year low and. However within a week the FTSE 100 had recouped those losses and by August the FTSE 250 hit record highs.
Digging deeper, the impact of Brexit isn’t being felt equally. Shares in RBS and Lloyds were suspended from trading and have continued to fall precipitously. Housebuilders, travel companies and airlines have also fared poorly. In contrast, defensive support services businesses, exporters, commodity players and companies with dollar-denominated revenues have bounced back strongly.
This leaves a complicated picture for recruiters to make sense of and requires an understanding of the key moving pieces in the Brexit jigsaw.
“Take back control of our borders” was a galvanizing message for Brexiteers throughout the referendum. The impact of immigration (perceived or real) on many communities was a key issue that swung the vote.
One contentious argument was that rising immigration from the EU was responsible for reduced employment for UK residents. The March 2016 ONS report on migration does indeed show that “net migration remains at record levels” and that “work remains the main reason for migration”. However, immigration of EU citizens remains lower than that of non-EU citizens, and at the same time, the UK’s unemployment rate of 5.2% in 2015 was the lowest since 2006.
These statistics come in to sharp focus in light of Brexit. Mr Tusk was “crystal clear that access to the single market requires acceptance of all four freedoms - including freedom of movement”. This dynamic explains the uncertain outlook for the UK. Which competing force will be felt most keenly around the negotiating table? Will we trade access to the EU single market for a reduction in EU immigrants and if so, is that a sensible trade for UK plc to make?
One of the prime beneficiaries of the single market is the UK’s financial and insurance sector. These companies rely on the ability to “passport” their regulatory approvals across the EU without having to re-apply in each country. The FCA recently revealed that over 5,500 UK companies rely on the financial passport to do business with other EEA member states. The foundation of their business is potentially under threat.
In a report to the Commons in February 2015, it was reported that the finance sector contributes 75% of the UK services trade balance, 11% of tax receipts and 1.1 million jobs (or 3.4% of the UK total). Before the referendum, JPMorgan, HSBC, Morgan Stanley, Goldman Sachs, Citigroup and Deutsche all publicly stated they would relocate employees in the wake of a Brexit vote. JPMorgan alone quoted at least 4,000 would be moved to the continent.
Given that “efforts to secure an appropriate arrangement for UK-based firms will be one of the most challenging aspects of the negotiations about the UK’s future relationship with the EU”
The immediate negative consequences of the vote should therefore come as no surprise. However, even after time for some calm reflection people remain worried. The OECD has halved its UK growth outlook for 2017 and research from The Federation of Small Businesses reported that UK small business confidence has fallen into negative territory for the first time since 2012
A September report from the CBI report the proportion of asset management firms considering hiring over the next three months has slowed to 11 per cent, down from 68 per cent in March. The August Manpower Employment Outlook Survey reported employers were less optimistic about adding jobs especially in financial services, construction and utilities, and in its half year results, SThree attributed the underperformance of its UK business in Q3 to a slow-down of hiring in the banking and financial markets
And yet as stock markets recover, recruiters have cause for optimism. August’s Recruitment & Employment Confederation’s JobsOutlook survey shows 24% of employers will take on more permanent staff in the next three months and 64% said they would maintain their existing headcount. In August, for the first time in 2016, 7% of small firms have reported an increase in headcount.
There was good news too from the UK’s listed recruiters in several specific sectors. James Reed reported an 8% jump in new jobs, Empressario have seen good performance in the technical & industrial sector, Staffline reported resilience in its core food and processing business and CPL continues to see strength in clinical hiring.
Clearly the impact of Brexit is not being felt evenly. Underlying trends in the UK market persevere. For example, there is still a critical shortage of teachers with 73% of LEA’s complaining there are too few candidates. The problem is spread across the UK and is particularly acute in Maths and languages. Newly qualified teachers in these subjects are commanding £4k “golden hellos” – a sure sign that demand is outstripping supply.
Similarly recruiters to the UK manufacturing sector are performing well. The August MarkitCIPS report showed the purchasing managers’ index has risen to 53.3 in August, up from July's figure of 48.3. A figure above 50 indicates expansion. Bouyed by a weakening pound, recruitment in this sector, especially in short term placements, continues to grow.
In the run up to the referendum, the Recruitment & Employment Confederation’s Jobs Outlook survey reported two thirds of employers were going to postpone recruitment decisions in the hope the vote would bring clarity to their crystal ball. In reality, it has become clear the UK is entering a prolonged period of uncertainty. We don’t know when Article 50 will be invoked and start the ticking of the two year clock. We also don’t know what Brexit is likely to look like when we eventually get there. If businesses choose to retain a cautious outlook and sit on their hands, they could well find themselves on ice for several years. It is likely the successful recruitment agencies will be the ones focusing on the sectors and clients who are able to disentangle the many opportunities and who are brave enough to go after them.