National living wage puts brakes on new jobs

According to the latest Lloyds Bank Regional Purchasing Managers Index business activity in England’s private sector registered its lowest reading for over three years in April. At 52.1 the index was just above the 50 points threshold separating growth from contraction. It was down from 53.7 in March.

Seven of the nine English regions showed either slower growth or contractions with only the East Midlands and East of England recording faster growth. London and the North East were the worst performers.

Employment “remained on a steady upward trajectory” during April, rising in most regions except for the North East, North West and Yorkshire & Humber. However, the overall rate of job creation was at a 32-month low and much slower than a year earlier. Lloyds said employers were being “cautious”.

It said one factor weighing on staff hiring was the introduction of the National Living Wage in April, which in turn contributed to the steepest monthly rise in businesses input prices since July 2014. Higher costs were largely absorbed by companies, however, as average prices charged for goods and services rose only marginally and more slowly than in March.

Tim Hinton, managing director, Mid-Markets and SME Banking, Lloyds Banking Group said: “The majority of regions have started the second quarter on a weaker footing, with business activity no longer showing the robust growth that we have seen over the past two to three years. A knock-on effect of stronger cost pressures from the National Living Wage and higher fuel prices has seen a slowing in the rate of job creation.”

Separately BDO’s latest Business Trends report found that UK business’ hiring intentions had fallen sharply to levels last seen in 2014. It said it was the “biggest drop since the aftermath of the financial crisis” with firms appearing to be shunning new hires because the National Living Wage makes employment more expensive. It also suggested that some firms may be holding off hiring until the end of the EU referendum.

Peter Hemmington, partner at BDO, said: “UK businesses are starting to look harder at whether recruiting new staff is always the right answer.”