This year may be nice but it won’t be easy

As Mervyn King, the Governor of the Bank of England, puts it, the UK economy
has turned in a "nice" performance in recent years – non-inflationary
and consistently expanding. Will the nice times continue in 2004? The CIPD view
is yes, though the practical challenge facing HR professionals is set to be
greater than ever.

UK manufacturing will return to health as conditions start to improve in the
world economy, with a continued high rate of government spending providing
further impetus to public investment. Consumer spending, by contrast, will be
more muted than of late, curbed by higher interest rates as the monetary policy
committee acts to maintain economic stability against a background of mounting

Given this growth pattern, around 250,000 extra jobs will be created, with
more people employed in business services and the public sector and more
becoming self-employed. But the number of manufacturing jobs is unlikely to
rise, and might even continue to fall as organisations restructure to improve
productivity and per- formance. And subdued consumer spending will constrain
job creation in consumer services sectors.

A potential drag on employment growth in the coming year will be the
tightness of the labour market. Payroll costs will rise unless organisations
manage to tap into under-used sources of labour – immigrants as well as jobless
people – or raise productivity by increasing the hours worked by existing staff
and/or getting more from each hour worked by improving skills or the
effectiveness of people management.

None of these options offers a straightforward choice. Increasing hours of
work, for example, conflicts with employees’ desire for a better work-life
balance. Tapping into unused sources of labour may depend on the effectiveness
of government initiatives to encourage jobless people to search for work and
improve their employability. Organisations seeking to employ more people from
abroad will have to operate within current immigration restrictions. And those
seeking to improve the performance of their workforce may have to invest in
skills development and engage in reorganisation. This may be difficult to
achieve quickly in the context of weak business investment in the past two
years – as well as having to ensure compliance with an increasing burden of red

The more organisations manage to respond to cost pressures by raising
productivity, the less employment will rise as the economy expands. Whatever
the response, a tight labour market in 2004 will provide an added impetus for
organisations to raise their game in recruitment and retention, training and
development, and reward and people management in general. The coming year might
continue to be "nice" but it will be far from easy for HR.

By John Philpott, Chief economist at the Chartered Institute of Personnel
and Development

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