Slowdown in labour market adds to gloom over economy

Fresh evidence of economic slowdown emerges today with a raft of surveys pointing to falling employment levels, declining business confidence and a slump in the housing market.

Britain's soaraway labour market success looks set to hit the buffers, according to research showing employers plan to cut their workforces for the first time in more than a year.

Almost half of UK employers expect to employ fewer people in a year's time, the Chartered Institute of Personnel and Development (CIPD) said.

Meanwhile, the latest business barometer from Lloyds TSB Financial Markets showed a continuing decline in confidence among employers in April. The percentage of firms reporting an increase in business activity fell for the second consecutive month to 46 per cent due to concerns about the slowing world economy, weakness in export markets, rising oil prices and a downturn in the property market.

The CIPD's employment survey found the number of firms planning to reduce staff over the coming year outnumbered those planning expansion by 23 per cent, the first negative balance since it began its survey a year ago. It is a sharp reversal from spring 2004 when a balance of 40 per cent of employers - private, public and voluntary - planned to recruit.

The negative balance is far larger in the public sector - 38 per cent - than in the private or voluntary sectors, indicating the Government's job creation programme is coming to an end after the election.

John Philpott, the CIPD's chief economist, said the pessimism probably stemmed from the Government's increased emphasis on the need for efficiency savings after a report by Peter Gershon identifying scope for £23bn of cuts.

Mr Philpott said: "Given that that the public sector has been a major engine of net job generation in recent years, this might be expected to have a dampening effect on overall demand for labour.

"But with the labour-intensive consumer services sector experiencing tougher times, and with public sector employers looking to make efficiency savings, the survey might be signalling more than an end of the jobs boom."

Meanwhile the number of firms planning to add staff over the spring fell to its second-lowest level, although it was an improvement. One in 10 expect their recruitment to be more than offset by redundancies, up from 3 per cent six months ago, the survey showed. It echoed the findings of a recent survey from the Recruitment and Employment Confederation that indicated demand for labour had begun to "plateau".

There are growing fears in the City that the consumer slowdown will undermine the labour market. Malcolm Barr, the UK economist at JP Morgan, said the coming months would be "critical" in the business cycle.

"Thus far weakness has been restricted to retail spending and manufacturing but there is an increasing risk that weakness in consumer spending will be passed back into the labour market, exaggerating the spending weakness," Mr Barr said.

Last week James Carrick, the chief UK economist at ABN Amro, warned that the economy could fall into a vicious cycle of cuts in spending and jobs that could see unemployment surge by 500,000 by 2008.

Figures show unemployment rose from 1.387 million in August to 1.430 million in February - a 3 per cent increase. Economists expect another rise when figures for April are published on Wednesday.

The CIPD survey showed companies still faced short-term difficulties in finding skilled staff. Almost 53 per cent had expected difficulty in finding the right staff, the highest figure since the survey began.