Economic uncertainty deters hiring in the UK & Germany

The UK experienced a hiring slowdown in the second quarter (Q2) of 2023, according to new data from KPMG and the Recruitment and Employment Confederation (REC).

This is linked to continuing economic uncertainty.

Although the UK’s inflation rate has fallen from 10% (a 40-year high) in the second half of 2022, it still remains at a troubling 7.9%, according to the Office of National Statistics. Interest rates currently sit at 5%.

KPMG and REC’s data showed that the number of vacancies climbed at the slowest pace since December 2020.

Interestingly, most of this slowdown was in permanent hires – the research found that “employers are also tending towards temporary hires, given lingering economic uncertainty”, according to Claire Warnes, partner, skills and productivity, at KPMG UK.

She added: “The sharp upturn in candidate availability this month – the highest for two and a half years – is a big concern for the economy reflecting the effects of a sustained slowdown in recruitment along with increasing redundancies across many sectors.”

Despite a slowdown in the number of vacancies across the board, this was not consistent across all sectors. Permanent vacancies rose steeply in sectors like hotels, catering and across other blue collar professions.

The issue is that there’s a “mismatch between open vacancies and the skills of available candidates”, and this “needs to be addressed urgently and a concerted focus on upskilling and reskilling is long overdue”, according to KPMG UK’s Warnes.The issue is that there’s a “mismatch between open vacancies and the skills of available candidates”, and this “needs to be addressed urgently and a concerted focus on upskilling and reskilling is long overdue”, according to KPMG UK’s Warnes.

Europe's top 3: The economic situation in France and Germany

For a whole host of reasons, the UK’s economy is lagging behind its European neighbors.

For example, compared to 8.4% in the UK, inflation rates in Germany sit at 6.4%; in France, they have reached 5.1%. Plus, interest rates in France and Germany are both 4%, lower than the UK’s 5%.

This doesn’t mean that Germany’s labor market isn’t being affected by similar economic uncertainty as the UK.

In May 2023, Germany saw a slight decline in the number of people employed – this is the first decline in 10 months. In addition, the German unemployment rate increased by 1.5% to 2.9% - this is the same proportion as May 2022.

As reported by Reuters, the German Federal Statistics Office labor office head Andrea Nahles commented: "The more difficult economic conditions are now also being felt in the labor market. Unemployment is rising and employment growth is losing momentum."As reported by Reuters, the German Federal Statistics Office labor office head Andrea Nahles commented: "The more difficult economic conditions are now also being felt in the labor market. Unemployment is rising and employment growth is losing momentum."

France, by comparison, doesn’t seem to be suffering the same hiring slowdowns – but, watch this space, as the latest figures from France are for the first quarter (Q1) of 2023 (January to March 2023).

The number of employees on the payroll in France increased in Q1 2023.

The increase was 0.3%, compared to the fourth quarter of 2022 – but payroll was up 1.3% on Q1 2022, and above March 2022 figures in 83 of France’s 100 departments (or regions).

Unemployment is also on the decline in France – it sits at 7.1% in Q1 2023, which is down 0.3 percentage points on last year’s figures.

The UK, by comparison, saw a 0.2 percentage point increase in unemployment to 4% between March and May 2023 – it is now sitting at pre-pandemic levels.