Private-sector demand not enough to offset public job cuts

The recovery in employment has stalled and demand in the private sector will not be enough to offset the expected layoffs in the public sector over the next three months, figures suggest today.

Demand for new staff in the private sector, which is currently compensating for a sharp decline in public sector jobs, will not last, says the quarterly Labour Market Outlook report from the Chartered Institute of Personnel and Development (CIPD) and accountant KPMG.

Of the 600 employers surveyed in every sector of the economy, the number who said they were more likely to make redundancies rose for a second quarter in a row, to the same level as a year ago.

Gerwyn Davies, the public policy adviser at the CIPD, said: "The employment situation looks like a case of the good, the bad and the ugly. A rise in unemployment in the next two years remains a distinct possibility as the private-sector recovery is offset by the 600,000 public-sector job losses expected over the next five years."

About 33 per cent of employers now plan to reduce staffing levels, compared with 29 per cent in the spring. In further bad news, many companies say they intend to lay off more employees this quarter than last – with 5.5 per cent of the workforce under threat, against 3.6 per cent in the previous quarter.

The CIPD/KPMG net employment index, which measures the difference between the percentage of employers looking to hire and those preparing to cut staff, is still in positive territory. However, it fell from +5 in the first quarter to just +2 in the three months to June.

There is a striking difference in the sectors, the survey found. The private sector employers' balance comes in at +19, while the public sector is at -35. That is in stark contrast to the previous pattern, buoyed by deliberate government action to boost the economy.

Alan Downey, of KPMG, said: "In the months ahead we will see a substantial reduction in the public-sector headcount as cuts begin to bite. That is the painful but inevitable consequence of the coalition's determination to tackle the massive structural deficit."

The decline in employment in the public sector is most keenly felt in local government, where the balance is -74. Public administration and defence is down -59.

The highest areas of growth in the private sector has been in manufacturing and production, where the index showed +40, and the information technology industry, which recorded a net balance of +42.