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"Avalanche of redundancies" warning from the CIPD

By Elizabeth Eyre (10-07-2008)
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A rise in interest rates could trigger “an avalanche of redundancies” later this year, economists are warning.

The Bank of England is due to announce its latest decision on interest rates today (10 July) and the Chartered Institute of Personnel and Development (CIPD) is predicting that, if rates rise, there will be serious repercussions for the jobs market.

Chief economist John Philpott said yesterday, ahead of the Bank’s decision: “Many employers have their finger on the redundancy trigger. They are not yet ready to start firing but a rise in interest rates would probably be enough to cause a substantial jobs cull come the autumn. And once this starts, the economy could witness a sudden ‘avalanche’ of redundancies.”

Philpott made his sombre prediction in the CIPD’s mid-year update on the state of the UK jobs market. Last December, its forecast was that 2008 would be the worst year for jobs in the UK for a decade and that pay increases would remain “subdued” despite mounting pressure from rising food and fuel prices.

The CIPD predicted that there would be only a third of the employment growth that the country enjoyed in 2006 and 2007, due to reduced recruitment and a small increase in redundancies in some sectors.

“Although this forecast was initially considered pessimistic, it is in line with labour market outcomes and, if anything, now looks relatively optimistic in comparison with the prevailing mood of economic doom and gloom, widespread reports of a significant slowdown in recruitment and a growing number of large-scale redundancies,” said Philpott.

That forecast had been based on the assumption that UK interest rates would fall in the second half of this year. That now seemed unlikely, making the outlook for both employment and unemployment worse than originally expected. In fact, Philpott said the CIPD now expected limited growth next year – if any at all – and unemployment to rise above one million.

He added: “This more subdued forecast assumes that the bank interest rate remains unchanged throughout the remainder of 2008. A rate cut or cuts would increase our optimism but a rate hike would be a cause of major concern.

“Our indications are that an increasing number of employers are in ‘wait and see’ mode and have made contingency plans for redundancies if the economic situation were to deteriorate in the coming months.”

 

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