Firms to start cutting jobs unless ecomomy picks up

A third of firms are overstaffed and almost two-thirds are planning to shed staff over the coming year if the wider economy fails to pick up, according to a survey for the Chartered Institute of Personnel and Development (CIPD).

The survey of 1,000 employers by YouGov found that 31 per cent have maintained staff levels higher than needed to meet present levels of demand over the past year. A majority said that they have done so to maintain the skills base within their organisations. Yet 62 per cent said that they would begin laying off these excess staff if demand did not improve over the next 12 months.

The survey helps to explain why national employment levels have remained relatively strong this year despite the economy's return to recession since last autumn – a trend that has been baffling economic policymakers. The number of jobless fell by 65,000 in the three months to May, with the official unemployment rate easing to 8.1 per cent.

Some analysts had suggested that official statistics showing falling output for the past three quarters could not be correct since the economy was also creating jobs over that time. But the CIPD survey suggests that the employment boost has been based on expectations of new work by firms, rather than actual fresh orders or new customers, and that the picture is set to deteriorate rapidly barring a pick-up in consumer demand.

"Unless growth picks up many [firms] will find that they cannot hold on to some workers any longer," said Gerwyn Davies, labour market adviser at the CIPD.

Nevertheless, the survey showed that optimism about the economy persists. The number of firms expecting to make redundancies in the third quarter of 2012 fell to 29 per cent, from 32 per cent three months ago.

The employment figures for July will be released on Wednesday by the Office for National Statistics.

The survey also suggested that pay growth will continue to be sluggish. Public sector organisations said that they expected average pay awards to be 0.2 per cent a year, while those in the private sector forecast rises of 2.5 per cent.

One in three firms expect there to be fewer entry-level jobs at their organisation in 10 years' time according to the survey by the CIPD's latest Labour Market Outlook.