Job creation and pay rises stall as employers fear the worst

Job creation in the UK is at a virtual standstill while pressure to increase pay and bonuses has been subdued as employers expect the economic downturn to worsen in coming months.

According to the latest quarterly Labour Market Outlook survey (LMO) from the Chartered Institute of Personnel and Development (CIPD) and KPMG, pay rises will at best be modest this year as employers attempt to limit costs in the downturn.

Staff pay, excluding bonuses, is expected to increase on average by 3.5% at the time of employers’ next pay reviews, slightly lower than the expectation of a 3.7% average increase recorded in the summer. However the expected average increase including bonuses has risen from 3.9% to 4%.

Meanwhile 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 down from plus 41 in autumn 2007 to just plus two in autumn 2008. This is the lowest figure recorded since the LMO survey began in spring 2004.

John Philpott, chief economist at the CIPD, said: “The 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 week’s 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.”

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Of the 721 employers surveyed, more than four in five (83%) reported that they expected the economic condition of the UK to deteriorate this autumn, with only 1% stating they expected things to get better.

Andrew Smith, chief economist at KPMG, said: “While the pressure on businesses 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.”