Hay Group 33 Grosvenor Place London, SW1X 7HG T: + 44 (0)207 856 7000 www.haygroup.co.uk 1 News Release Embargoed until 22 June 2008 Downturn to hit profits until 2010 " Business leaders forecast continued fall in profits and staff numbers " £900 million to be wiped off company profits; 350,000 jobs to go " UK economy will narrowly avoid recession UK business leaders expect company performance to suffer for up to three years as a result of the current economic turmoil, according to a new study from global management consultancy Hay Group and the Centre for Economic and Business Research (cebr). The findings suggest that the UK economy will experience another 18 months of slowing growth, which could hit profits to the tune of close to £1 billion, and result in up to 350,000 job cuts. However, the UK will narrowly escape a full-blown recession, the study concludes.
The research gathered senior business leaders 9 predictions on the impact of economic downturn on UK companies over the next three financial years. The results, to be published in a forthcoming report, paint a picture of falling profits, workforce layoffs and slowing wage inflation. Russell Hobby, Associate Director at Hay Group, comments: cBusiness ... more. less.
leaders see tough times ahead 3 with falling profits eroded further by rising inflation in the short term.<br><br> Though the economy looks set to avoid recession, UK plc is facing a long, slow climb out of the current dip. d Falling Profits Business leaders forecast that their companies 9 profits will fall by 1.3% on average over the current financial year (2008/9) - a drop equivalent to a total of £900 million if extrapolated across the economy - before recovering to grow by 2.7% during 2009/10. Larger companies (those with over 1000 employees) expect to be even harder hit, with profits predicted to slump by 2.2% on average. Financial services bosses see an alarmingly bleak outlook, predicting an 8.4% profit reduction for this year.<br><br> Russell Hobby, Associate Director at Hay Group, comments: cThese unsavoury conditions will not only hit profits in the short term, but will expose firms not ready to take advantage of the upturn when it comes. cAggressive strategies will be required to snatch market share from competitors by offering better value. Business leaders must be ready to divert resources to high performing units, and take advantage of deflated share prices to make strategic acquisitions, if UK firms are to be ready for the next cycle. d Reduced Headcounts The study reveals a worrying outlook for employees: business leaders plan sharp job cuts in 2008/9, expecting their workforces to contract by 1.1% on average 3 equivalent to around 350,000 job losses across the economy as a whole.<br><br> Hay Group 33 Grosvenor Place London, SW1X 7HG T: + 44 (0)207 856 7000 www.haygroup.co.uk 2 News Release The outlook is worse in the financial services sector, where business leaders predict a reduction in the workforce of almost 2%, or some 110,000 jobs 3 close to a third of all job losses across the UK economy. Workforce numbers are not expected to recover until 2009/10, when they will return to just below current levels. The picture is worse among mid-size companies (500-1000 employees), where two consecutive years of staff reductions are predicted, with workforce numbers falling by 1.4% by 2010.<br><br> Russell Hobby, Associate Director at Hay Group, comments: cOrganisations should be wary of cutting headcount so deeply in the short term that they will not be able to take advantage of the upturn when it happens. cIn addition, star performers are often the first to leave in a downturn. Companies must invest in retaining their best talent. d Slowing Wage Inflation Senior leaders also predict a slowdown in wage increases 3 falling to 3.9% in 2008/9 3 with no return to last year 9s rates predicted during the three years studied.<br><br> Worryingly in the light of fast falling profits, finance bosses are struggling to keep wages down, with salary growth forecasts outstripping the average: 5.2% in 2009/10 and 5.4% in 2010/11. Russell Hobby, Director at Hay Group, comments: cBusiness leaders must strengthen the link between pay and performance when looking for ways to keep costs down, if they are to retain and engage talent in the absence of pay increases and generous bonuses. d The R Word& The Hay Group / cebr findings point to at least 18 more months of slowing economic growth 3 but suggest that the UK will narrowly avoid recession. GDP growth will fall to 1.7% in 2008, and be even lower in 2009 at 1.4%.<br><br> Growth rates are not expected to return to 2007 levels until as late as 2011. John Ward, Managing Economist, cebr, comments: cUK businesses are facing the most challenging economic environment for more than a decade, as the impact of the credit crunch ripples across the economy and inflation picks up as input prices rocket. cHowever, with interest rates, inflation and government finances in better health than before the last sustained downturn, we expect that the UK economy will escape recession. d Inflation cebr analysis forecasts a turbulent time for household bills over the next three years, with inflation running well above the Bank of England target of 2%, and expected to remain high in the short term.<br><br> Hay Group 33 Grosvenor Place London, SW1X 7HG T: + 44 (0)207 856 7000 www.haygroup.co.uk 3 News Release However, cebr foresees consumer inflation falling to potentially as low as 1.75% over the next two years as the downturn bites. John Ward, Managing Economist, cebr, comments: cHousehold costs are in for a bumpy ride. In the near term, with concerns over food and fuel prices to the fore, inflation is likely to remain high.<br><br> cHowever, the economic slowdown and more restrained growth in China will dampen the effect of rising commodity prices in 2009 and 2010, helping to bring down inflation. cOnce the UK economy begins to recover, however, inflation will rear its ugly head again after 2010, returning to close to current levels. d ends Further Information For more information or an interview with Russell Hobby or John Ward please contact: Daryl Newman, Vic Crook, David Mercer or Rachel David at Man Bites Dog: T: +44 1273 763 911 E: email@example.com Notes to Editors About the research Hay Group commissioned independent research among 120 senior business leaders in UK companies, 40 of whom were from the financial services sector. Additional economic analysis was provided by cebr.<br><br> About Hay Group Hay Group is a global consulting firm that works with leaders to turn strategies into reality. We develop talent, organise people to be more effective, and motivate them to perform at their best. With 86 offices in 47 countries, we work with over 7,000 clients across the world.<br><br> Our clients are from the public and private sector, across every major industry, and represent diverse business challenges. Our focus is on making change happen and helping organisations realise their potential. For more information, please visit www.haygroup.co.uk About cebr cebr (Centre for Economic and Business Research) is a leading, independent commercial economics consultancy specialising in macroeconomic and market forecasting.<br><br> www.cebr.com