So, for the first time in 4 years, the Bank of England has cut the interest rate in the UK by 0.25%. from 5.25% to 5%. This follows similar cuts made by other major economies over the last few months and comes before an expected cut in the US in September. This is likely a first move as we enter a period of slowly reducing interest rates in the UK over the next 18 months.
While the impact of this reduction will take a little bit of time to filter through to the economy, it is without doubt good news for consumers and businesses alike. There are both direct and indirect impacts of a movement in the interest rates.
For example, on the client side, the lower cost of borrowing will help leveraged businesses as their interest repayments will reduce. Many companies borrowed during the low-interest period to help drive growth, and over the last few years have see their cost of borrowing increase significantly in the same way as mortgage holders have. With these costs reducing and likely to continue to do so it will reduce the strain on these companies and potentially free up funds for investment in growth again. Most businesses use finance in some capacity – RCF, Term Loans, Mortgages, Asset-backed finance etc so this reduction in costs should have a direct benefit.
If this helps companies invest in growth again, this might lead to an increase in hiring. It is not an exact science, as some investment will be in productivity improvements, but even these will often lead to human capital needs. Perhaps companies might move forward with delayed projects like system upgrades, which require project teams to deliver or start to look into acquisitive growth again, which needs due diligence specialists to be hired.
Beyond the direct impact of finance costs, a lowering of interest rates tends to also increase confidence somewhat in the markets. Some candidates might find their financial commitments — mortgages, loans, etc — become a little more manageable, and therefore they feel more confident in trading the perceived security of an existing role for the excitement of a new one. It may also influence their view of the factors that are important to them – salary, role, responsibilities, and benefits. Alternatively, it might make a mortgage more affordable and therefore drive a house move, and therefore a new, better-paid role becomes more important. As you can see the rate change can affect people very differently based on their personal circumstances.
Confidence plays an important role in any recruitment process, and, while it is hard to quantify, when there is more confidence on both the client and candidate side then processes often progress more smoothly.
It would be wrong to suggest that a small reduction in interest rates will completely change the recruitment markets this year, as there are many other macro and micro economic factors entwined together that always make it a complex picture. However, moving into an expected period of reducing interest rates will likely be a positive for the sector and drive more confidence and growth in the economy, which in turn might mean companies increase hiring and candidates are more prepared to move.
Will this be in 2024 or 2025? Time will tell.
