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Hiring to Go on Upward Spiral

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Hiring intentions among UK businesses rose strongly in July to surpass their pre-crisis figure and reach their highest level since 1998, according to the latest Business Trends Report by accountants and business advisers BDO.

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The BDO Employment Index, which predicts companies’ hiring intentions in three months’ time, rose from 108.8 in June to 109.6 in July, indicating that job creation will continue to accelerate for the remainder of the year. A significant uptick in hiring intentions among services firms in particular has driven July’s gains, suggesting that graduates from the class of 2014, many of whom will be looking to start their careers this summer, face the most encouraging job prospects of any graduation class since the onset of the financial crisis.

The buoyant services sector also positively influenced the BDO Output Index, which predicts companies’ performance three months ahead. Economy-wide output rose from 103.6 in June to 103.7 in July, mirroring the 0.1 rise reported by the Output Sub-Index for the dominant services sector, which accounts for over two-thirds of the economy.

The BDO Optimism Index, which predicts businesses’ expectations over a six month horizon, rose from 104.8 in June to 105.1 in July, as both services and manufacturing firms reported gains. This reading, which stands at its highest level for over a year, indicates continued above-average growth in the economy over the medium-term, although the rate of acceleration in business confidence appears to be levelling off.

Inflationary pressure is likely to be a key reason behind the longstanding levels of confidence among businesses. The BDO Inflation Index remained broadly unchanged at 97.6 in July, far below the long term average of 100 and only just above the 95 mark that indicates costs are rising. Labour-intensive services firms in particular continue to benefit from weak cost pressures, as spare capacity in the economy undermines wage growth.

Commenting on the findings, Peter Hemington, Partner, BDO LLP, said: “The good news is that the unprecedented growth we’ve seen in UK employment this year looks set to continue, providing this year’s university graduates with a welcome dose of good news in terms of job and salary prospects.
“However, we’re hearing that services firms are beginning to echo manufacturers in voicing their concerns over a shortage of skilled workers and some construction businesses are already turning business away due to a lack of trained staff. This could bring the stellar growth we’re enjoying in the wider economy to a grinding halt if the trend becomes entrenched.

“To address this, the Government must ensure its protectionist tendencies are put on hold until productivity returns to pre-crisis levels. Although a new wave of graduates will go some way towards meeting businesses’ needs, readily available and flexible labour from Europe could relieve pressure on businesses in the short term.”