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Half a million new jobs expected in run up to election as economy strengthens

Over 450,000 private sector jobs will be created in the next 12 months, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).  With a year until the General Election, the Chancellor will be satisfied as the economic recovery becomes more solid and businesses prospects more optimistic.

Key findings for Q2 2014 show:

  • The BCM Confidence Index stands at +37.3, up from +37.2 in Q1 2014, a new record high
  • The UK economy is forecast to grow by 1.2% in Q2 2014. If achieved, this growth would finally take the level of GDP above its pre-crisis peak in Q2 2014, with GDP standing 0.5% higher than the peak seen in Q1 2008
  • The skills gap though is expected to widen, exports are not growing as fast as domestic sales, and an interest rate rise is expected which could impact on consumer demand

Michael Izza, chief executive of ICAEW, said: “This quarter’s BCM results show that the recovery is becoming more solid. Employment growth is accelerating and salary growth is now keeping pace with inflation. Business expectations continue to improve across all regions but issues are still there. The skills gap is widening and exports are not rising fast enough which could further exacerbate the UK balance of payments deficit. Overall though the Chancellor will be pleased with the current state of the economy with a year to go until the General Election.”

Scott Barnes, CEO of Grant Thornton UK LLP, added: "The forward progress in business confidence over the past few quarters is reassuring and reflective of many of the conversations we're having with dynamic business leaders. As the UK economy continues on its positive trend, it's imperative that the jobs created in the near-term offer long-term substance, rather than a temporary fix to unemployment. For that to happen, and for the UK to solidify its status as a global economic powerhouse, the economy needs a truly diversified pipeline of skilled talent to take companies forward – something business leaders fear just isn't in place at the moment."

Skills gap widening

Despite an increase in confidence, over half of businesses are still operating below capacity with big differences depending on sector. 64% of Manufacturing and Engineering companies have spare capacity compared to 40% in the Banking, Finance and Insurance sector. Skill shortages are also becoming a greater issue compared to a year ago. This is especially prevalent in the Construction industry with the availability of skills becoming a major issue.  

Michael Izza comments: “There is a real concern amongst business owners that they will not be able to recruit employees with the right skills. This is a real threat to the sustainability of the recovery. It is becoming more of a challenge especially in the Construction and IT and Communications sectors for both management and non-management skills. It will take some time for these skills to become available as a result of recent Government initiatives.”

Firms expect to hire more staff

Employment prospects have improved with an increase of 2.2% expected in employee numbers in the next 12 months. This equates to 450,000 new jobs in the private sector with SMEs leading the way in terms of planning on taking on new staff.  There is also added pressure on wage growth with salaries starting to match inflation with increases planned of 2.2% and staff turnover becoming more of an issue.

Scott Barnes continued: “This growth, if realised, would take UK employee numbers further into new all-time highs. Combined with an increase in salaries, living standards should start to improve for most. Crucially, however, we need to ensure that the right mix of jobs are being created in industries which offer the UK a competitive advantage over other economies; and that tomorrow's workforce is being appropriately trained and encouraged to take on these new opportunities.”

Confidence improves across all regions

Confidence has improved in all regions compared to 12 months ago with no significant difference between London and the South East and the rest of the UK. Property and Construction are understandably the most confident given the improvement in the housing market as well as the IT and Communications sector.