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Blog - Published 2nd June 2016

Is Brexit stalling your UK recruitment and confidence?

Menzies Brexit Poll - the UK EU Referrendum

With the EU referendum just over 3 weeks away, there is no doubt that Brexit is impacting on the UK economy. The uncertainty surrounding the outcome of the referendum and the implications for UK business is effecting industry confidence.

A number of sectors of the UK economy are reporting a slow-down in activity. Unsurprisingly the recruitment industry, which is normally a good barometer of business confidence is reflecting a drop in vacancies and revenue. The number of vacancies advertised during the beginning of 2016 was down by approximately 7%.

This slow-down is widely reported in the press and also evident from discussions we are having with our own clients. In March the FT reported “City hiring grinds to a halt as Brexit poll looms”. The article identifies that the city had a very slow start to 2016, in fact the slowest start to a year since 2009. Recruiters operating in this sector are obviously experiencing an impact on performance. The message from many of the employers in this sector is that the drop in activities is temporary and hiring decisions are simply being delayed until July.

Impact of Brexit?

Should the UK decide to withdraw from the EU, the impact on the UK recruitment industry is impossible to determine. There is no doubt the UK relies upon migrant labour, and there are currently 2 million EU workers employed in the UK, 7% of the UK workforce.

Any future restrictions on the movement of labour will almost certainly result in a skills gap, and this is cause for concern for both UK recruiters and employers alike. However, employment lawyers and other professionals believe that it will take a number of years to unravel EU employment laws and so the real impact on the labour market of a departure from the EU will take time to fully understand.

De-risking your business

There is no short term solution or quick fix for recruitment businesses. However, business owners can look at medium and longer terms strategies geared around de-risking their business such as:

  • Building a strong team – successful recruiters work hard to retain and motivate key staff. It is not all about short term financial gains.
  • Insulate the business against fluctuations in labour market activity by looking at different income sources such as a mix of temporary and permanent hires.

It is no surprise that with a slow-down in the permanent job market, recruiters are reporting an increase in profits from temporary placements. More recruiters are also exploring the interim contract market, a very similar strategy to that of temporary recruitment.

We are also seeing clients moving from the traditional model of placement fee income to a retainer basis or negotiate an annual fee for a complete outsourced recruitment solution.

The future

We would expect market conditions to pick up in July once the uncertainty surrounding Brexit has been removed. However there is no doubt if the UK does leave the EU, the employment landscape and therefore the recruitment industry is likely to undergo significant change during the next 3-5 years.

A recent survey by REC identified that its members were twice as likely to see remaining in the UK as the best outcome for their business and the UK economy at large. We do however suspect the overall outcome will be closer when June 23rd arrives.

If you would like further information on how to de-risk your business or how to retain and motivate your key staff, please contact Tim Dunn at tdunn@menzies.co.uk or telephone 01784497100.

Tim Dunn is part of Menzies Business Services sector team.

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Tim Dunn - FCA

Partner

Tim Dunn is a Partner at Menzies providing business outsourcing advisory and accountancy services for a range of UK SME businesses.