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The outlook for the UK economy

The outlook for recruitment David O’Brien, 0151 600 3707, david.obrien@shorecap.co.uk 23rd March 2013. The outlook for the UK economy. Slow recovery beginning to feed through , GDP forecast raised from 1.2% to 1.5% for 2013 by the BoE

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The outlook for the UK economy

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  1. The outlook for recruitmentDavid O’Brien, 0151 600 3707, david.obrien@shorecap.co.uk 23rd March 2013

  2. The outlook for the UK economy • Slow recovery beginning to feed through, GDP forecast raised from 1.2% to 1.5% for 2013 by the BoE • Inflation continues to fall, aided by a stable oil price • UK employment rate at 71.4% • Modest average wage growth of 0.4% Source: Bank of England Source: Datastream

  3. Inflation falling • Main components of CPI • UK CPI inflation fell from 2.8% in March to 2.4% in April 2013 • Pressure from utilities set to fall as sterling cost of fuel declines • Student fees drop out of the CPI from Autumn, where they currently add 0.3% • Falling CPI in turn eases the pressure on disposable income • Housing market improving • We expect the consumer to begin spending again, albeit fuelled by debt rather than productivity gains initially Source: Datastream Source: Asda Source: Datastream

  4. UK economic confidence improving • The Lloyds Banking Group Business Barometer, which measures the level of optimism on the economy and business activity, remains increasingly upbeat. This points towards strengthening GDP growth from Q2 to Q3. • While consumer confidence remains at low levels, as evidenced within the Asda Income Tracker data, we think the worst is over for the consumer. Source: Lloyds Banking Group Source; GfK

  5. Employment - slight disappointment in recent figures • The recent ONS labour market figures for January to march demonstrated an employment rate of 71.4% (from 71.6% in Oct – Dec 2012). This equated to 29.71m in employment aged 16 and over, down 43,000 • Unemployment rate of 7.8%, up 0.1%, with 2.52m unemployed, a rise of 15,000 from the previous report • Vacancies of 503,000, an increase of 4,000 on December’s data • AWE regular pay growth of 0.8%, the lowest growth rate since records began in 2001 Source: ONS Source: ONS

  6. Employment intentions broadly positive • Net employment intentions (recruitment minus redundancy expectations) are positive in all but the public sector • ..led by the voluntary sector, • With services demonstrating stronger growth than manufacturing within the private sector Source: Bank of England Source: CIPD

  7. Public sector job churn on the rise? • A number of recruiters have commented on the strong activity levels YoY in the public sector during Q1 • We think that rising vacancy levels...., • ..low job satisfaction and , • ..a desire to progress one’s career..., • Despite the wider environment within the public sector this has led to an increase in CHURN • With net job satisfaction in the private sector waning, coupled with an improvement in confidence, how long before churn begins to rise generally? Source: ONS Source: CIPD

  8. Greater demand for Full-time and temp employees currently • ONS figures to February demonstrate that there was greater demand for full-time and temporary workers • Demand for part-time employees slowed further during February • We think this suggests slowly improving confidence in prospects for the UK economy Source: ONS Source: ONS Source: ONS

  9. Public-private sector employment growth • All private sector segments growing at broadly similar rates in the year to February • There even appears to have been a recovery within the financial services sector, although a number of retail banks have announced redundancies recently • However, Public Administration remains the laggard within the Public Sector, with healthcare remaining the strongest of the three segments Source: Datastream Source: Datastream

  10. Pay growth fell in March 2013 in the private sector but... • Pay growth declined 1.3% YoY within the UK private sector in March • But rising 1.1% in the UK public sector • However, the CIPD labour market outlook survey suggests that growth in pay is likely to be higher within the private sector from Q2 2013 onwards Source: CIPD Source: ONS

  11. Outlook for UK economy improves • The outlook for the UK economy is set to improve further, based on the Markit composite PMI • While the Report on Jobs survey suggests the demand for recruiting new workers fell during April • However, the Markit PMI for employment in the UK (across all sectors) is modestly upbeat from May onwards • Source of charts / data : Markit / Datastream / REC / KPMG

  12. US, trends remain positive but slowing • In view of the combination of tax increases and budget cuts during 2013 YTD, it is hardly surprising that growth trends are slowing in the US • The most recent US employment PMI for April fell to 50.2, suggesting modest growth in the outlook for staffing levels generally • There tends to be direct correlation between the ISM and US non-farm payrolls... • ...the number of job openings and, • ..weekly hours worked • Source of charts / data : Datastream

  13. However, overall US employment continues to rise...just Source of all data / charts : Datastream

  14. ..and other US trends improving • The Challenger job cut announcements fell 6% during April, the best performance in three months • With the average period of unemployment continuing to decline from peak levels • Resulting in unemployment falling to 7.5%, the lowest level in 52 months Source of data / charts: Datastream / Challenger

  15. ..led by the US private sector • Job creation continues to be led by the US private sector... • ..with the US public sector shedding net jobs since mid-2010 • Not surprisingly, working hours continue to rise, led by the private sector and, • At an annualised rate of 1.9% YoY, average earnings growth improved slightly in April Source of data / charts: Datastream

  16. EU & German indicators deteriorating Source of data / charts: Datastream

  17. Employment and vacancy levels decline in France • Q1 results from the recruiters demonstrated sharp YoY declines in NFI in France, which were tending to bump along the bottom • This is borne out by the relatively slow decline in employment levels and decelerating decline in temporary workers • However, the level of vacancies continues to decline at an increasing pace Source of data / charts: Datastream

  18. While trends inasia Pacific are broadly positive... Source of data / charts: Datastream

  19. ..although Australia takes a further lurch downwards • Just as a stabilisation of the economy, at lower levels looked on the cards in Q1 2013 • ..the resources sector was hit by further project cancellations • As a result, unemployment is on the rise, • Vacancies are falling and, • Hours worked have begun to decline further Source of data / charts: Datastream

  20. What are results in the real world suggesting? • The Q1 results, measured on a YoY basis demonstrated that an inflection point in YoY NFI growth levels was passed, particularly in professional services recruitment • Europe remains the laggard, with Australia holding back the Asia Pacific region generally • Asia begins to deliver green shoots • Argentina and Brazil mixed in the Americas • The UK, excl. Financial services, is showing green shoots Source: Michael Page Source: Hays Source: Robert Walters

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