Despite the overall strong performance of the recruitment industry, recruitment businesses have been and continue to be impacted by increasing operating costs as inflation soars. This section looks at recent trends in business confidence and cash flow management in the industry from April to September 2022.
5.1 Business confidence
Last year’s report told a story of optimism as the government outlined a roadmap to economic recovery, and April to June 2021 saw employers’ confidence in making hiring and investment decisions at net: +33, the highest recorded since the JobsOutlook survey began in mid-2016. Employers’ confidence in the UK economy also rose to net: +19 in June to August 2021.3
More recently, due to rising inflation and steep increases in interest rates, employers have become more cautious in making business decisions. Employers’ confidence in their ability to hire and invest has steadily declined to net: -27 in July to September 2022. Business confidence in the UK economy has also fallen to a record low of net: -67. With further increases in both inflation and interest rates likely to come, we can expect to see confidence fall further.
However, employers’ intentions to hire permanent staff in the short-term and medium-term remained buoyant at net: +17 and +18 in the three months to September this year. Mid-sized (50-249 employee) organisations’ hiring intentions rose to net: +27 and net: +28 in the short-term and medium-term, as did private businesses to net: +19 and net: +20.
For temporary agency workers, forecast demand in the short term for mid-sized enterprises remained stable at net: +14 and increased within the public sector from negative territory to net: +9. Mid-sized enterprises were also more optimistic about increasing temporary headcount in the medium-term at net: +12, followed by small-sized (0-49 employee) enterprises at net: +6.
Although business confidence is falling because of the economic outlook, employers’ intentions to hire remain strongly in positive territory.
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5.2 Cash flow management
Cash flow management is always of central importance to recruitment businesses – workers’ wages need to be paid, regardless of when the client pays you. Despite higher fees, growing numbers of clients and greater placement volumes, the survey of recruiters shows that some businesses are continuing to face financial difficulties as the cost of doing business bites.
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The survey indicates that roughly one third (32.8%) of recruitment businesses have experienced a significantly higher impact from late payments, whilst just over a third (35.2%) have seen a slightly lower impact.
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The story is similar with regards to increasing interest rates. Nearly one third (31.9%) have seen a significantly higher impact of increasing interest rates from April to September 2022. This is unsurprising given the increase in the Bank of England base rate from 0.75% in April 2022 to 2.25% in late September 2022, and it is worth noting that interest rates have risen further to 3% in early November. Some businesses have reported a lower impact of interest rates, this may be due to decreases in borrowing.
These financial difficulties have led to 6 in 10 businesses taking at least one measure to manage outstanding payments in the last six months. Just under half of businesses (45%) have reduced their operating costs, with a similar number (40%) negotiating payment terms. Amongst the business community, reducing business travel and relying on more virtual meetings has been a common way to lower costs. Otherwise, about 1 in 3 businesses (34%) have increased their level of borrowing in the past six months.
The vast majority of organisations (96%) have made a change to their business with regards to financial management over the past six months, with almost 8 out of 10 reducing office costs through hybrid working. Just over 4 in 10 businesses have taken steps to diversify operations in terms of types of recruitment, regions and sectors. This shows the will of recruitment businesses to adapt and take steps to overcome challenges in a difficult period.
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These survey findings show that, despite the strong performance of the recruitment industry in 2021 and the early parts of 2022, many businesses in the industry, just like their clients, are facing changeable financial headwinds. Rising interest rates have increased the costs of borrowing, and the increased inflation rate, which has largely been driving higher energy prices, has squeezed profits. In the face of these challenges, recruitment businesses have shown remarkable flexibility and ability to respond.
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