With Recession Fears Growing, UK Employers May Need to Brace for Restructuring

Phil Black - PII Editor 03/11/2023

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According to official figures, the UK’s gross domestic product (GDP) increased by 0.2% between April and June, brought about by better-than-expected figures generated by manufacturing and the lack of a Bank Holiday in June.

However, researchers from the National Institute of Economic and Social Research (Niesr) predict a bleak outlook for the country, stating that elevated housing, energy, and food costs will continue into 2024. These challenges will be compounded by sluggish GDP growth, worsening income inequality, and rising debt and unemployment.

Economic indicators

In August, the Bank of England (BOE) agreed that the economy will lag over the next few years but remained optimistic that a recession is unlikely. The following month, in September, the BOE changed its tune after a string of indicators prompted it to halt its quickest monetary tightening, or its policy of raising interest rates and deposit ratios to make credit less easily available, in three decades.

The biggest factor that led to this decision was S&P Global’s purchasing managers’ index (PMI) falling further from 50.8 in July to 47.9, pointing to a protracted contraction in the goods-producing sector.

As a result, central bank officials expect the GDP to fall 0.2% in the third quarter. On the bright side, inflation has eased, with the Consumer Prices Index falling to 6.7%, indicating that the rate rises set by the BOE are finally taking effect.

The PMI data signifies that UK businesses suffered an unexpectedly sharp downturn that persisted through August and September. Martin Sartorius, the Confederation of British Industry’s (CBI) principal economist, said to The Independent: “With output volumes contracting at their fastest pace since the Covid-19 pandemic and order books deteriorating, this survey makes for gloomy reading for manufacturers.”

Implications for businesses

In the past, there have been similar economic downturns that have affected major industries in the UK. For instance, in 2020, the pulp and paper industry experienced a substantial decline due to digital media and paperless communication, requiring businesses to innovate or otherwise be forced to lay off employees.

Businesses are not immune to the surging cost-of-living and inflationary pressures, so to make up for losses, companies in the manufacturing and services sectors have similarly been downsizing their workforces at the fastest rate since 2009.

In a bid to help workers impacted by workforce restructuring, a number of organisations leverage outplacement services to support staff members in finding other work. A Mercer survey revealed that in 2021, 44% of organisations indicated that they offer outplacement for all or the majority of terminations, a 13% jump from the 31% offering outplacement services in 2018.

Businesses that have a well-thought-through redundancy strategy and plan can mitigate the possibility of losing talent from “turnover contagion” and avoid other common pitfalls associated with making redundancies. Global corporations can help protect and enhance their brand reputation by ensuring that exiting employees are supported as they look to secure their next opportunity.

Among the companies that have enacted workforce restructuring in the form of downsizing are Rolls-Royce, KPMG, Vodafone, Virgin Media, BT Group, Marshalls, Wilko, and Haleon. Manufacturers — who make up 10% of Britain's economy — reported the biggest fall in output prices since February 2016, echoing wider weakness in the sector.

In response, manufacturers are also cutting their recruitment plans. “It's clear that manufacturers' expectation of the future is driving reduced activity today, with inflation and higher interest rates resulting in companies engaging defensive manoeuvres by cutting jobs and investment to protect the viability of their business,” Make UK's senior economist, Fhaheen Khan, said to Sky News.