The latest Labour Market Outlook report from the CIPD and Adecco Group shows that employment growth in the UK is slowing, and it is probable that real wages will fall during 2017.

The report reveals a decline in the net employment balance during the most recent quarter. This balance is the difference between the employers who are expanding their workforce and those who are reducing it. Whilst the balance stands at +22, it was at +27 in the prior quarter.

Median basic pay settlements of 1.1 per cent are anticipated for the next year, which indicates a decrease in real wages throughout 2017.

Brexit is believed to have a role in the shift, and it will be felt in areas such as the hiring of migrant labour. CIPD Labour Market Analyst Gerwyn Davies said: “The report points to the UK economy beginning to face some likely headwinds following the UK’s decision to leave the European Union. The impact of potential restrictions to migrant labour will certainly be exacerbated by the fall we’re seeing in business investment intentions.”

Davies doesn’t expect employers to invest in skills despite the controls on migration because of the weaker pound, adding: “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.”

Restrictions and changes brought about by Brexit appear inevitable, yet most employers are not prepared to meet the new challenges. Whilst the Government could potentially provide assistance when the immigration policy changes, both traditional employers and companies that hire contractors need to plan now for the future.

Currently, 62 per cent of employers use migrant workers, and 23 per cent of this group report that EU migrant employees are looking to leave the UK due to Brexit.

Strategies are being assembled by the 15 per cent of employers who expect difficulty in future EU recruitment. These plans include strategic workforce planning, reviews of resourcing strategies, investment or increased investment in apprenticeships and the forging of links with educational institutions.

Since many businesses value their access to EU migrants yet also expect costs to increase because of Brexit, Davies advises these organisations to invest in skills and capital. “The recent cut in interest rates should offer employers a timely reminder that borrowing costs for business investment are historically very low, which can help offset the increased risk of skills shortages and lower productivity growth.”

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