Labour market monitor highlights severity of jobs squeeze

The latest quarterly CIPD/KPMG Labour Market Outlook (LMO) published today, finds that net job creation is at a virtual standstill in the UK with employers extremely gloomy about prospects for the economy.

According to the survey of 721 employers – conducted in September by Ipsos MORI – the balance between the proportion of employers expecting to increase staff levels in the following three months and those expecting to cut staff has plunged from 41 in Autumn 2007 to just 2 in Autumn 2008. This is by far the lowest figure recorded since the LMO survey began in spring 2004.

The marked decline in the demand for labour reflects profound employer pessimism on the economic outlook. More than four in five employers (83%) responding to the survey expected the economic condition of the UK to deteriorate this autumn - with only 1% expecting things to get better – though respondents were somewhat more optimistic about the outlook for their own organisation (only 25% expecting things to get worse).

Meanwhile, pay pressure is set to continue to be subdued. Staff pay, excluding bonuses, is expected to increase on average by 3.5% at the time of employersí next pay reviews – slightly lower than the expectation of a 3.7% average increase recorded in the summer LMO survey. However, the expected average increase including bonuses has risen from 3.9% to 4%.

Commenting on the latest LMO findings CIPD Chief Economist, John Philpott, says: ìThe year since the impact of the credit crunch was first felt saw the UK labour market move from a state of buoyancy to one of stagnation. We are now at the start of a period of contraction, with jobs being lost, new jobs hard to come by and, as this weekí official statistics are set to confirm, unemployment on an ever sharper upward rise. With pay increases at best modest for those still in work the harsh chill of recession will make this the toughest winter for UK households for almost two decades.î

Andrew Smith, KPMG Chief Economist says: While the pressures on business to control spending - both on staff and in other areas - are real and intensifying, there has to be a balance between cutting costs now and the risk of lasting damage to the business through inadequate investment for the longer term.