Employment outlook continues to grow in the UK but at a slower pace and real wages look likely to fall in 2017 amid continued Brexit uncertainty, according to the latest Chartered Institute of Personnel and Development/Adecco Group Labour Market Outlook report which highlights challenges facing organisations and finds that employers don’t want and aren’t ready for a hard Brexit.

The research also shows that concerns are emerging over the implications of Brexit for employers’ access to migrant labour and a reduction in employer investment intentions.

According to the report, the net employment balance, while remaining in positive territory at +22, based on the difference between the share of employers expanding their workforce and the share of employers reducing their workforce, has shown a decline from the previous quarter’s figure of +27.

At the same time, real wages look set to fall during 2017 as, for the second quarter running, employers anticipate median basic pay settlements of 1.1% for the 12 months ahead, against a backdrop of anticipated higher inflation. Furthermore, although 42% of employers believe that future restrictions on EU labour could damage their UK operations, 15% have started to prepare for this eventuality.

“The report points to the UK economy beginning to face some likely headwinds following the UK’s decision to leave the European Union,” Gerwyn Davies, Labour Market Analyst at the CIPD, said. “The impact of potential restrictions to migrant labour will certainly be exacerbated by the fall we’re seeing in business investment intentions. Given the current level of uncertainty and the projected increases in costs as a result of a weaker pound, it’s not surprising that employers aren’t currently persuaded to respond to likely controls on migration by investing more in skills. However, this will put further pressure on the UK’s productivity growth potential, which is critical to employers’ ability to afford more generous pay increases. Pay expectations are already weak, and as inflation moves up we can expect a period of low or negative real wage growth for the squeezed middle.”

The research shows that 6% of employers said they favour a ‘hard Brexit’ which would see the introduction of World Trade Organisation rules. Meanwhile, the majority of employers broadly favour existing trading arrangements (16%), a European Economic Area type arrangement including free movement of labour (26%), or negotiated bilateral free trade arrangements (10%).

“It seems that few UK employers want or are ready for a hard Brexit outcome, which all the latest political commentary seems to be pointing towards,” Davies said. “However, uncertainty over the UK’s future arrangements with the EU is no excuse for inaction. From all of the information we have, it’s inevitable that there will be restrictions on EU migrant labour after the UK leaves the EU and employers must be prepared for this. It’s vital that the UK government considers making intermediate arrangements when introducing changes to immigration policy. This will ensure that employers that have come to depend on EU migrants to deal with recruitment difficulties or skills shortages have time to review their recruitment and training and development strategies ahead of Brexit.” 

The survey also shows that employers are already reporting that it will be harder to recruit and retain EU migrant workers even before the UK officially leaves the UK. Of the two thirds (62%) of employers that employ migrant workers, almost a quarter (23%) of employers say they have evidence that EU migrants are already considering leaving the UK in the next 12 months as a result of Brexit. Furthermore, more than half (54%) of those who have intentions to recruit EU migrants over the next 12 months believe it will be harder to recruit EU migrants in the year ahead.

Among the 15% of employers that have started planning for the likelihood that it will become harder to recruit EU nationals in the future, 43% say they have started strategic workforce planning, 39% report they are undertaking a review of the organisation’s resourcing strategy, while 22% say they are planning to start investing in or increasing their investment in apprenticeships, and a similar proportion report they are looking to build closer links with schools and colleges.

“For years, the UK has been one of the most attractive countries for EU workers, benefitting from easy access to a large, European talent pool,” John L Marshall III, CEO of Adecco Group UK & Ireland, said. “However, the Brexit vote is now seeing UK employers look increasingly concerned about their access to the single market. The Brexit decision should therefore serve as a wakeup call for employers, who need to adopt a more strategic approach to workforce planning, investing more in their own staff and engaging with educational institutions to improve the UK’s domestic pipeline of talent.”

The Labour Market Outlook also finds that almost a third of employers (30%) expect that the UK’s vote to leave the EU will increase their costs over the next three months, which may partly explain why employers are more likely to be planning to reduce (15%) rather increase (9%) investment in skills and the continued squeeze on wages.

When asked to choose whether free access to the single market or continued easy access to EU migrants is most important to their organisation, 25% said both were equally important, 19% of respondents said free access to the single market and 19% opted for continued easy access to EU migrants. Less than a third of employers (31%) say neither free access to the single market or the ability to recruit EU migrants is important to the success of their organisation.