Umbrella companies may feel the effects of a recent plunge in consumer confidence that could lead businesses to temporarily curtail spending. That’s according to the latest “Expectations and Spending” indices produced by the Nationwide, which recorded consumer activity during January this year.

Robert Gardner, the Nationwide’s Chief Economist, said that consumer confidence in January was not only still “in the doldrums” but heading toward the historic lows last seen in the depths of the recession. The data was gathered at a time when the VAT rate had just risen, and rising fuel and food costs were putting added pressure on already tight household budgets.

These depressing figures coincide with a recent survey produced jointly by the Chartered Institute for Personnel (CIPD) and KPMG, which showed that the recent downturn has hit small businesses in the service sector the hardest. Smaller firms, which include freelancers working through limited companies, saw their turnover drop by 38 per cent. The equivalent figure for medium-sized enterprises was 19 per cent, but larger companies suffered the least with a drop of just 3 per cent.

Growth is still expected in the private sector, but estimates vary as to its strength, with some (such as the CIPD/KPMG analysis) suggesting that it will not be strong enough yet to offset public sector job losses. Local authorities are widely believed to be aiming for a 13 per cent reduction in staffing during Q1, although private firms in manufacturing especially are likely to provide some additional job opportunities. PAYE umbrella contractors should still be able to find roles, but refugees from the public sector looking for permanent posts may find it harder to pick up new work. Gerwent Davis, CIPD’s Public Policy Adviser, suggests that the fragile recovery seen last year will go into reverse temporarily this year.

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