Business outlook
Many of the comments from the recruitment agencies in our survey focus on a backdrop of uncertainty caused by high inflation, continual changes in government leadership and the threat of recession. So, it’s understandable that more than half (51%) of firms have negative or very negative feelings about the UK economic outlook.
Feelings about the UK's future economic outlook – by size of firm
Wariness about the headwinds facing the UK’s crowded recruitment market seem well-founded: the final months of 2022 and the first quarter of 2023 saw a significant slowdown in recruitment. Permanent and contractor placements were the worst affected, particularly in North America.
The broader economic outlook is discouraging too, with the International Monetary Fund (IMF) predicting the UK will be the worst performing of the G20 major economies this year. With inflation and interest rates still high, and a sluggish trade performance, the IMF expects the UK economy to shrink by 0.3% in 2023 before growing by 1% in 2024.
Breaking down our respondents’ feelings about the UK economic outlook by size of firm, it appears that larger recruitment businesses are slightly more pessimistic than smaller firms, with 69% feeling negative or very negative, perhaps because they have already been worse hit by falling recruitment activity or because they have better early-warning data of an economic downturn.
With the headline news of continuing redundancies or reduced headcount across all industry sectors, it seems 2023 will be a difficult year with recruitment being put on hold by some businesses.
Increased competition for work means a flexible and innovative approach to working with clients, and maintaining strong client relationships, will be the key to success in more uncertain times.
Biggest external challenges faced – by size of firm
Looking at the biggest challenges faced by firms, our survey unsurprisingly reveals that the overwhelming majority (85%) of agencies point to the shortage of job candidates, while 73% nominate a shortage of consultants – the same top concerns that were spotlighted in our 2021 report.
The shortage of candidates has of course been exacerbated by the cut in supply of overseas staff caused by Brexit. One survey respondent fears Brexit has “gained us a very bad reputation” in the eyes of many foreign workers and suggests: “We need more flexibility about bringing staff in from Europe.”
The lingering hangover from Covid also continues to have a negative impact on the available labour pool in some sectors. Another of our survey respondents highlights the fact that social care, hospitality and other lower-paid sectors have been reliant on overseas candidates but since 2020 there has been a “huge decline in the number of workers available in these sectors”.
Talent challenge
Many firms point to finding and retaining the best recruiters as the biggest headache they face. As one survey respondent puts it: “Talented recruiters will make money in any market – the key is to hire talented people, keep them engaged and focus on delivering excellent service to customers.” It’s therefore unsurprising that 41% of firms, according to our survey, find holding on to talent to be one of their biggest challenges.
Breaking down our findings about key challenges by size of firm, it seems that the issue of shortage of consultants is most acute for firms with NFI of £2 million to £10 million, while the struggle to hold on to talent affects more of the largest firms with NFI of £10 million to £100 million.
More positively, very few firms (10%) say that availability of funding to fuel growth is a challenge.
Several survey respondents suggest that market conditions might be tough in the short term but are more hopeful over the longer term, while some suggest that the shortage of candidates in the job market will push up salaries and mean higher fees for some recruiters.
Seizing the opportunities
Looking on the brighter side, many of our survey respondents highlight the wealth of opportunities that still exist for the right recruitment firms.
Niche skill sets remain in high demand and a return to growth in the contract/temporary market could be on the cards as employers look to manage more difficult trading conditions by maintaining a flexible workforce. At the same time, the sterling/dollar exchange rate could encourage more recruitment firms to expand into the US.
Respondents’ comments also make it clear they believe agile business models that allow firms to adapt and innovate fast are a huge advantage and that smaller, hungrier agencies will generally come out on top against more cumbersome and bureaucratic competitors.
Underlining our survey findings, many respondents suggest that performance levels are often sector dependent. They expect demand for job candidates in technology, plus other sectors like financial services and facilities management, to stay strong or at least resilient in the face of a downturn.
And most agree that strategies to diversify operations, client bases and revenue streams will help to mitigate against those employment sectors worst hit by any economic problems ahead.
Saffery LLP is a member of Nexia a leading, global network of independent accounting and consulting firms. Please see https://nexia.com/member-firm-disclaimer/ for further details.