Business confidence lower than 1991

Appointments of both permanent and temporary staff nose-dived last month as businesses' short-term confidence fell to its lowest level in almost 20 years, research has claimed.

Auditor BDO Stoy Hayward's Business Trends report claims firms' turnover expectations in the short term tailed off last month. The report's Output Index fell from 91.3 in November to 89.0 in December, with 100 representing trend annual growth of 2.5 per cent.

An index of 110 would equate to the boom of the latter part of the 1980s, while 90 equates to the 1991 recession. The drop below this mark indicates that firms are expecting the economic climate to deteriorate to its worst state in more than 20 years.

BDO partner Peter Hemington said: "With order books for UK businesses collapsing and volumes for the next quarter rapidly diminishing, businesses now have concrete evidence that the downturn will be worse than it was in the early 1990s.

"The reality is that things are now very tough indeed. And, while in the current environment many businesses need all the help they can get, with interest rates already so low, further reductions in interest rates will help little. The key focus of public policy now has to be to improve substantially the flow of credit to UK businesses by whatever means are available.”

Auditor KPMG, working with the Recruitment and Employment Confederation (REC), also published research this week claiming staff recruitment and salaries for new employees fell last month. Both temporary and permanent appointments fell sharply in December and the high availability of candidates weakened their bargaining power when making salary demands.

REC chief executive Kevin Green said: “At a time when the government is proposing job creation measures, the REC will be seeking urgent meetings with the government about its proposed removal of the VAT concession in April. This change will put an additional £150m tax on temporary jobs when we should all be working together to create employment opportunities, not taxing them out of existence."

KPMG partner Mike Stevens added: "There are two factors which have not been present in previous recessions and which might moderate the impact on job losses. The first is that we have moved toward a bonus culture where a significant part of total pay is a bonus depending on both performance and the employer's profits.

"Thus salary cost should fall in time of recession reducing the need to cut staff. The second factor is that the UK has been a magnet for foreign workers for the last five years and recession may mean that these people choose to return home, where they can live more cheaply, if work is no longer available."