Published Monday 28th January 2019

A UK economic report has suggested that labour shortages are playing a major role in the stagnating growth of the British economy. The British Chambers of Commerce (BCC) released their quarterly economic survey at the beginning of January, commenting on the UK’s continued financial struggles due to the pressures of Brexit, along with other market factors.

The BCC survey focused mainly on the services and manufacturing sectors, reporting a worryingly low level of demand and output in each. Whilst a range of economic issues are outlined, the focus on recruitment is particularly concerning as we head into the chaotic closing stages of the Brexit negotiations.

A Lack of UK Staff

A problem that has been gaining momentum since the EU Referendum in 2016, the labour shortage is now one of the key domestic issues faced by all businesses. In this recent report by the BCC, they found that 81% of manufacturers expressed trouble finding the right staff, a record high since the survey began in 1989. The manufacturing sector often relies on skilled workers, something which has been a struggle for UK businesses even before Brexit. Therefore, the service sector findings make for even starker reading. An industry synonymous with entry-level work, 70% of service sector companies reported a disappointing labour market, just short of the survey’s highest recorded figure, 72%.

The UK labour market is in the midst of a perfect storm, one in which a way through is unclear. Currently, the UK is seeing the highest rate of employment since 1971 (75%), and the lowest unemployment rate (4%) since 1975. Whilst most quarters welcome this news, it is also a concerning figure given the number of labour shortages in the market.

However, a bigger problem for the short-term future of the UK labour market is immigration. Brexit has dominated the UK political landscape since the referendum in 2016, and the growing hostility of arguments has been felt outside of the country. In November of last year, net migration from EU countries to the UK was reportedly at its lowest for six years. Whilst non-EU migration climbed to a decade high, overall figures are substantially lower than before the referendum. Experts warn that a weakening currency and anti-immigration policies are driving away many workers, some of them with the vital skills needed in the UK market.

Domestic Issues Taking Hold of UK Business

The labour market concerns are the first sign of domestic issues beginning to take prominence for UK businesses. Following the Commons Brexit vote earlier in January, confusion about the future trading agreement is still rife throughout the UK. Now, however, its effect on domestic business issues is being felt more than ever. In the BCC survey, the number of service sector companies reporting increased domestic sales fell to the lowest figure in two years. Manufacturing faced similar issues, with its domestic sales stagnating at the end of 2018 as short-term economic and Brexit uncertainty took hold.

Another key point from this survey heading into 2019 is a reported increase in price pressure. Both manufacturing and service respondents reported a higher probability of price increases over the next three months than previously, an issue that is frequently cited by other industries, such as retail. The weakening value of the pound, combined with expected trade difficulties post-Brexit, may leave British companies with little choice but to raise prices in 2019. However, with consumer confidence low, particularly with the uncertainty of Brexit, businesses are finding it increasingly difficult to introduce new price ranges, which could lead to significant profitability concerns going forward.

At a time when profitability is constantly being squeezed, and skilled labour is hard to find, it is crucial that UK businesses are doing everything they can to ensure profitability throughout 2019. Here at ERA, we are experts at helping companies to streamline their expenses, particularly in the area of staff cost. Our experienced team have years of experience, supporting UK firms in areas such as agency recruitment, payroll and specialist staff. So, if you are looking at evaluating your workforce going forward, why not get in contact with us today and see what savings we could create for your business?