More fears over looming skills shortages as another survey predicts strong employment growth

August 11, 2014

Further evidence of an impending skills shortage among West firms that could threaten to derail the economic recovery has emerged from a report predicting the strongest jobs growth since 1998.

The national survey by accountants BDO shows businesses’ hiring intentions rose sharply last month to surpass their pre-recession figure and reach their highest level for 16 years.

The firm’s Employment Index, which looks at the market in three months’ time, also indicates that job creation will continue to accelerate for the remainder of the year.

But while this is welcome news for recent graduates, who are enjoying the best recruitment conditions since before the downturn, it is triggering anxiety among many commentators who fear that a lack of skilled workers will hit firms at exactly the point in the economic cycle when they need to recruit trained staff.

The best way the Government can ease the plight for these businesses, they argue, is to abandon stricter immigration rules and allow more skilled foreign workers into the UK.

BDO partner and head of its Bristol office, Graham Randall, said: “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.”

The BDO research was echoed by the results of a survey from the Chartered Institute of Personnel and Development showing around two thirds of employers plan to recruit in the next three months.

Recruitment intentions in the public sector have risen to a five-year high with 75% saying that they plan to take on more staff in the third quarter of 2014. Recruitment intentions are highest in healthcare (77%), education (74%) and accommodation, food service, arts, entertainment and recreation (74%) while in the voluntary sector, recruitment intentions have risen from 58% to 68%.

A study by the Prince’s Trust and HSBC last week revealed that 69% of South West businesses are concerned that a significant skills crisis will hit their organisations within the next three years. Some 43% predict this will happen within the next 12 months.

Two thirds believe skills shortages are so serious they will slam the brakes on the UK’s economic recovery while a third fear that it would lead to their business folding.

Meanwhile, the BDO Output Index, which predicts companies’ performance three months ahead, was buoyed by the continuing recovery in the service sector, which accounts for more than two-thirds of the UK economy.

The Optimism Index, which gauges expectations in six months’ time, also rose as both services and manufacturing firms reported gains. Now standing at its highest level for more than a year, this measure indicates continued above-average economic growth over the medium-term – although the rate of acceleration in business confidence appears to be levelling off.

Inflationary pressures, earlier seen as a potential brake on continued growth, now appear to be easing, which in turn, is triggering higher levels of business confidence.

BDO’s Inflation Index was 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.

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