Businesses considering redundancies to manage high costs, report says

Pessimism and low confidence among British businesses has led firms’ recruitment plans to reach the lowest levels in two years, an influential report has found.

Employers are pausing hiring plans and considering redundancies to manage rising costs, accounting and advisory firm BDO said in its analysis of more than 4,000 businesses surveyed across different sectors.

Optimism and productivity eked up by a fraction in December, but it followed a significant drop in November, therefore remaining well below historic levels.

BDO uses employment, inflation, optimism and productivity indices to get an overall picture of business sentiment. A score above 95 represents growth, and anything below is considered a contraction.

In the latest report, business productivity and optimism were both given scores below 92, putting them firmly in negative territory.

It was partly dragged down by declining manufacturing output, as global supply chain disruption has made it harder for firms to get hold of important materials, and energy prices have spiked.

The services sector was a welcome bright spot with productivity increasing fractionally since the last report, indicating that consumers were more active over the typically busier Christmas period.

Meanwhile, the employment index was scored just under 111 points, but it represents the weakest reading since January 2022.

Furthermore, hiring intentions among businesses reached the lowest level since the end of 2020 when the UK was hit by the Omicron wave of Covid and faced further lockdowns.

It suggests that employers are having to pause recruitment as they face higher costs and the looming threat of a recession, and are even having to make more redundancies, BDO said.

Kaley Crossthwaite, a partner at BDO, said: “Although output and confidence levels grew slightly in December, the marginal upticks will do little to calm the nerves of UK businesses.

“Inflation and supply chain pressures are clearly being felt across the board, as employers pause recruitment plans and consider redundancies to manage rising costs.

“With an expected recession increasing pressure on the UK economy, firms will be looking for the right support from the Government as it works to encourage growth and confidence in the run-up to the spring budget.”

Earlier in the week, online retail giant Amazon said it plans to cut more than 18,000 jobs across the globe, including in Europe, blaming the “uncertain economy” for the cuts.

And software firm Salesforce also recently announced it would be making a wave of redundancies, which could affect hundreds of staff in the UK.

Analysts have suggested that many businesses hired rapidly over the pandemic and now are being met with weaker demand amid an economic downturn, prompting them to find ways to cut costs.