Private sector hiring intentions reach six year high

BUSINESSES’ hiring intentions have reached a six year high, according to the latest Business Trends report from accountancy firm BDO.

A jump in BDO’s Employment Index, from 102.7 in February to 104.3 in March, shows businesses’ hiring expectations are at their highest level since June 2008, pointing to expansion in the labour market.

This is markedly above trend and suggests that recent falls in unemployment will continue in 2014, it said.

Confidence in employment growth is mirrored by a rise in optimism. The firm’s Optimism Index shows business sentiment returned to January’s all-time high of 103.8 in March (up from 103.3 in February).

This was buoyed by strong optimism among manufacturers, while the services sector also sustained a robust reading.

The positive outlook is supported by the ongoing rise in BDO’s Output Index, which reached its second-highest recorded reading of 102.9 in March, up from 102.7 the previous month.

The index has only ever been higher in May 2006, in the middle of the pre-crisis boom when credit was abundant, indicating that the economy is expanding at a rate well above its long term trend.  

Persistently low inflation is likely to have contributed to growth expectations. While unemployment falls but underemployment stays high, competition for jobs is likely to remain fierce and labour-intensive services firms will continue to benefit from relatively low wage growth. Until this remaining spare capacity in the economy is spent, inflation is likely to linger close to the Bank of England’s 2% central target, BDO said.

Tim Entwistle, partner and head of BDO in the North West, said: “After a difficult few years, the above-trend growth we’re seeing in businesses’ hiring intentions bodes well for George Osborne ahead of the election. The Chancellor cannily qualified his recent pledge to create a “full employment” economy.  But with growth strongly on track and employment levels rising, he may be able to claim success sooner than might be expected.”