UK Labor Market’s Brexit Beating May Be Yet to Come

UK Labor Market’s Brexit Beating May Be Yet to Come

After suffering a shock in the aftermath of June’s Brexit referendum, business confidence in the UK appears to have stabilized. A new report from ManpowerGroup suggests the same, but as Alexandra Gibbs observes at CNBC, there are signs of trouble down the road:

In the latest Manpower Employment Outlook Survey, out of the nine industry sectors surveyed, eight are expected to grow in staffing levels during 2016’s final quarter, highlighting that on the surface, the referendum outcome has “done little to dampen employers’ immediate hiring plans.” … Yet in its survey which looks at U.K. employer responses, despite job prospects having remained relatively stable, Manpower suggests that “cracks in the ice” are starting to appear within the country’s labor market, after six out of nine sectors reported a drop in jobs optimism.

Portrayed as “bellwether sectors”: construction, financial & business services, and utilities showed the biggest declines in confidence, having all reported a four percentage point dip in employer optimism when comparing Britain’s final quarter to its third quarter for 2016. Looking at regions, employers in Yorkshire & the Humber and Northern Ireland expect staffing levels to fall. On top of that, the Manpower outlook survey revealed that sentiment around hiring in the public sector had tumbled to its weakest level in over four years. A sector that according to Manpower, accounts for close to one in 10 U.K. jobs.

I still don’t think the optimistic August numbers are enough to ward off concerns about the future of the UK’s labor market. The sectors showing the biggest increase, according to Manpower, are agriculture and hotels/retail. The agriculture sector depends heavily on seasonal migrant workers from Europe, and just this week, British farmers called on the government to make sure they still have access to that vital labor pool after the UK exits the EU.

As for hospitality and retail, the recent increase here could be explained by an increase in tourism after the post-referendum drop in the value of the pound, which made it cheaper to visit the UK and especially London, one of the most expensive cities in the world. When the currency eventually recovers, that effect will wear off.

The bottom line is that these sectors employ mostly unskilled labor, and unfortunately, that is the segment of the workforce that will be most affected by Brexit once it comes into effect. While the government has indicated that highly skilled European professionals like doctors or bankers will still be able to live and work in the UK without much trouble, this will likely become much harder for waiters, hotel receptionists, and farmworkers. Between the decline in optimism uncovered by Manpower, the likelihood of future visa restrictions causing shortages in low-skill professions, and the lingering uncertainty over the future of Britain’s relationship with the EU, the current situation looks like the calm before the storm.