Philpott’s Almanac 2005

Some say the best antidote to the dreary days of early January is the New Year horoscope. Worries about the post-Christmas overdraft and expanding paunch are soothed by a look at forecasts for love, money, and career advancement. Political and economic pundits have jumped on this soothsaying bandwagon. So, not to be left out, here is my version – Old Philpott’s Almanac for 2005.

General election

The early months will be dominated by the build-up to a May General Election. The Conservatives and Liberal Democrats will perform much better than expected, but a somewhat chastened Tony Blair will remain in Downing Street. Ministers will proclaim a ‘radical third term’ before proceeding to carry on with business as usual, with incoming Chancellor of the Exchequer, Alan Milburn, promising to build on the legacy of his predecessor, the new foreign secretary Gordon Brown.

The economy Brown hands over will still be performing adequately, though not quite as well as Brown forecasts in his farewell Budget in the spring. Consumers will continue to rein back on spending as the housing market cools further, while the expected export recovery will be affected by the impact of a weak dollar on the strength of the euro zone economies. However, this dampening effect on demand will be offset by continued strong growth in public spending and investment, and an ongoing improvement in business investment.

Economic growth will be slower than in 2004, but still respectable at around 2.5 per cent for the year as a whole. As the pace of growth slows, the economy will further rebalance towards investment and away from consumption. But unemployment will stay low, and employers will continue to face a tight labour market.

Salary prospects

Although the Chartered Institute of Personnel and Development’s (CIPD) quarterly HR trends and indicators survey finds employers generally sanguine about the scale of increases in wage costs in 2005, some additional wage inflation seems likely, not least because higher inflation will be affecting wage bargaining. Inflation, as measured by the Consumer Prices Index, will rise towards the Government’s target of 2 per cent as spare capacity in the economy is absorbed. Living costs, as measured by the Retail Prices Index – which has the strongest influence on wage bargainers – will increase by around 3.5 to 4 per cent.

Employers in all sectors will be looking to raise productivity to contain rising cost pressures. Options sought will include increasing working hours and/or output per hour, by means of reorganised working practices. This will range from high performance work methods through to outsourcing and offshoring. More emphasis on productivity and performance is likely to be particularly noticeable in the public sector as employers embark on delivering the efficiency cost savings identified by the Gershon review, published in 2004.

Job creation

Higher productivity will tend to curb net job creation in the short-term. Given the expected economic outlook, the level of employment will not increase as much as in recent years, at 150,000-200,000 in the year to December 2005. The scale of net job losses in manufacturing will diminish, but there will be no net job creation in the sector. At the same time, slower growth in consumer spending and government efficiency measures will curb the number of new jobs created in both private and public service sectors.
Signs of more modest growth in employment are not yet apparent in most independent surveys of recruitment intentions, but may already be evident from the CIPD’s quarterly HR trends and indicators survey.

Employment levels

In the latest published survey, conducted in autumn 2004, the 17 per cent positive balance of employers expecting to employ more staff in the following year over those expecting to employ fewer was the lowest recorded since winter 2003. However, job creation could turn out to be greater if more employers manage to tap potential labour supplies, including immigrants and some of the 8 million people of working age not currently active in the labour market. This would help to limit wage pressure that might otherwise directly choke off demand for additional staff and/or cause the Bank of England to raise interest rates.

Either way organisations will once again be looking to raise their game in terms of recruitment and retention, training and development, reward management and people management in general. HR can expect another hectic year in 2005.

For more HR predictions for the year ahead, GO TO

Key action points for HR in 2005:

– Obtain greater value for money from reward budgets

– Improve recruitment and retention practices without increasing costs

– Shift the balance of training activity from programme delivery to supporting and facilitating the learning process

– Reorganise working methods more effectively, and help line managers get better at delivering on a high-performance people management agenda

– Increase the efficiency of HR systems and processes

– Better measure the effectiveness of HR policies and the HR contribution

– Raise the standards of employee communication, involvement and engagement.

John Philpott is chief economist at the CIPD

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