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Wednesday, 12 March 2008

Budget 2008 – how to make a financial crisis seem dull

Today saw the announcement of Alistair Darling’s first budget. Not the most interesting budget because the Chancellor had little room to manoeuvre. On the one hand, the government is becoming increasingly unpopular which is stopping them from making any major steps towards raising taxes. On the other hand, the Treasury has overspent in previous years, which has reduced their ability to increase spending now the economy is entering a period of slower growth – and could really do with a little help from the Government.

One major announcement was that the 2008 GDP growth forecast for the UK was revised down by 0.25% to between 1.75% and 2.25% in today’s budget. This still looks like a very high estimate given that the survey of independent forecasts, as mentioned on page 169 of the Red Book, presents forecasts that range from between -0.1% to 2.1% and average of 1.7% in 2008. Independent forecasts are also in a period of being downwardly corrected by many banks and consultancies. As the year continues the Treasury forecasts are likely to look increasingly unrealistic.

Other measures that will impact upon work and working life:

• Income tax changes confirmed for April. Basic rate drops from 22 per cent to 20 per cent and the 10 per cent band is abolished.

• New charge on non-domiciled residents to be introduced from April and won’t change during this parliament, and next if Labour remain in power.

• Public sector employment has fallen in the past year; private sector employment risen.

• Around £60m to be spent over the next three years to encourage people to move into work and to move up the employment ladder.

• Spend of £10m over the next five years to create a new science fund for teachers in secondary schools.

• Increase in the amount of funding for adult training. Investment of £200m in poorly performing schools to try and improve GCSE grades by 2011.

• Long-term sick to attend “work capability assessments” from April 2010.

• New contract to help parents into work involving a commitment to find employment. Benefits for working families will be boosted.

• Child benefit will be up to £20 per week for the first child in 2009, a year earlier than planned. Child element of child tax credit to be raised by £50 above inflation a year.

• Tax-exempt limits on individual savings accounts increased to £7,200 a year for standard accounts and to £3,600 a year for cash accounts.

• Launch of a “savings gateway” in 2010 to encourage people to invest.

…and worst of all:

• Beer duty to increase by 4p per pint, wine up 14p a bottle, cider up 3p a bottle and spirits up 55p a bottle.

Increasing taxation on alcohol and large cars were the only areas the Chancellor could get away with any major increases in taxation. With all the fuss about “binge” drinking and anti-social behavior the Treasury has decided to take advantage of this situation, increasing the duty on alcohol by 6% above inflation. This has been welcomed by the British Medical Association, but has raised concerns from breweries that sales will fall and more pubs will continue to shut.

It is unlikely that the Chancellor was too worried about the health benefits of high taxes on alcohol, and was more interested in the raising revenue, but perhaps that’s just the cynical views of a man who likes a pint.

All in all this was an uneventful budget that will not be widely remembered. The key things to take from this are: the government are likely to have got their sums wrong; there have been some moves towards reducing child poverty; there has been some simplification of the tax system (a good thing but could go further); and if you smoke, drive a big car and like to drink then the government thinks you are a bad person and wants you to pay for it.

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Monday, 21 January 2008

Worst day for FTSE since 9/11

Today was the worst day for the FTSE 100 since the attacks on the Twin Towers. Fears that recession in the US is now more a probability rather than a possibility has fueled fears that this will have an impact on company profits in the United Kingdom, particularly the large, internationally focused firms.

The worst hit companies were commodity based firms. The slowdown in the US and the likelihood that China will put the breaks on is set to reduce the demand for commodities such as copper. As a result the price of copper and other commodities are likely to fall in 2008 and as such so will the profits of the major mining companies. Other factors such as stalled aquisition plans also had a negative impact upon firms in this sector.

With the US markets closed today the full impact of today's fall will start to become clearer tomorrow. The market has been particularly volatile during the past six months and as such it would not be a great surprise if investors believe the markets went too far today and start to buy some shares which now look cheap.

However this level of nervousness and instability is not a good sign for the markets and the wider economy. Markets now seem to be coming to a conclusion that the United States is entering - or may have already entered - a recession. This will have a negative knock on effect upon the whole of the international economy. Although it may take some time to directly impact the UK, it will put downwards pressure on exports from the UK - not just to the US but internationally as the whole world slows. Weaker financial markets will also hinder activity in the financial services sector in London which provides many jobs and is a principle driver of the whole economy.

Coupled with the credit crunch the financial system is not looking in good health. This coupled with the slowdown in the US, over stretched consumers, a weakening housing market, high government debt and continued inflationary pressures will not make 2008 a very tough year. A recession in the UK is still not a likely outcome, however it won't take to much for it to become more so.

Get ready for rising unemployment and a tougher labour market - if you're looking for a job expect less opportunities and greater competition. If you are moving jobs choose the sector and company carefully because not all companies will survive 2008.

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Wednesday, 16 January 2008

Labour market statistics - hiding the start of slowdown 2008

As I mentioned yesterday the Labour market statistics were released today, and as I expected they have yet to highlight the slowdown in the wider economy. However, with economic statistics, looking at one months worth of data can be very misleading, especially when you fail to put it in the wider context.

Looking at the monthly data nearly all the data was good news for the UK economy. Unemployment was down, employment was up and the number of people claiming benefits was down. This looked like a continuation of a very successful period of labour market expansion.

Nevertheless, these figures hide the variations caused by end of year demand for employment in financial services and Christmas employment in the retail and leisure sectors.

I would expect to see in first quarter of 2008 being a much less impressive year for the labour market. With retailers likely to have suffered a very tough Christmas, employment in these sectors is set to fall. The banks and other financial institutions are also expected to cut employment. Citi has already announced planned cuts of around 20,000 jobs worldwide - many of these are likely to be in London.

What is of a greater concern is that these figures may delay decisive action by the Bank of England. Today's release indicated a pick up in the rate of wage inflation, which in turn will stimulate general levels of inflation. As such, with the prospect of increased inflationary pressures, the Monetary Policy Committee may decide to be more cautious about cutting rates.

Today's data is likely to be one of the last bits of positive labour market news in 2008. Tougher times have already arrived for many people, the data will catch up in February and March to prove this.

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Wednesday, 3 October 2007

Election time – unnecessary and bad for the jobs market.

Although we don’t know yet whether Gordon Brown will call an election to take place next month, it is becoming increasingly likely given the Labour Parties extensive leads in the polls. Gordon Brown doesn’t need to call an election until 2010 but it seems that he believes by calling it now he will be able to increase his majority and gain a mandate to rule.

Given the outlook for the economy this is probably the best time for Gordon to call an election. Although early signs of the economic slow down is starting to show in the crisis at Northern Rock, slowing house price growth and the loss of jobs in the City of London this has not yet had a significant impact upon the wider economy. As such, Gordon Brown, whose legacy is intrinsically entwined with the economy, is likely to face heavy criticism should the economic environment turn sour.

So what is the likely impact of an election on the labour market?

In the short term the election is unlikely to be good for the jobs market. Political uncertainty is never good for business investment and planning and as a result businesses will tend to slow their expenditure and put back decisions until after the election. Although this has a bigger effect in countries where the political divide is greater, such as France, it will have an impact, especially given the current economic environment of financial uncertainty.

In the longer term the outcome of the election will help to decide the impact on employment market. One risk is that the election will result in a hung parliament. If this is the case then the result could be political paralysis. The Liberal Democrats will eventually provide the support so a government can be formed, however, the decision making process will be significantly slower. Therefore if problems such as the current credit crunch start to have a much wider and deeper impact on the economy, the government of the day would be less able to act decisively to stem the decline. Again this situation adds to risk and uncertainty, making business less willing to invest in the United Kingdom, keeping their money in the bank or sending it elsewhere.

If either the Conservative Party or the Labour Party is elected with a majority then the outlook for the jobs market will be much better. (In my opinion this is a good case for the first past the post system, but that’s beside the point). Having a party that can act decisively reduces economic risk.

Both of the parties have relatively similar policies when it comes to the jobs market. Neither is proposing a massive hike in taxes, as the Liberal Democrats are, which would harm the economy as the highly skilled and the high net worth, which support and create jobs leave the country or become tax exiles.

The Conservative Party in the long term is likely to reduce the number of people that work in the public sector. Therefore as a result if you currently or looking to work in this sector, then your employment prospects might be diminished. Nevertheless this is not entirely a bad thing. If the reduction in public sector employment leads to lower taxation then this should stimulate economic growth as people have more money in their pockets to spend on other sectors in the economy.

Public sector employment also acts as a barrier to private sector employment. The public sector usurps markets and skilled employees from the private sector, and as a result hinders the growth of this sector. Without the hindrance of profit requirements and short-term cash flow needs the public sector can continue to operate despite its lower productivity compared to the private sector. Therefore, a slowing of public sector employment growth should help the private sector to flourish as it replaces the public sector. This private sector employment is likely to be of higher productivity with greater returns, which in turn will help to boost employment in the wider economy.

The outcome of the election is not a done deal, but nor is the outcome for the jobs market. There currently exists plenty of risk in the economy and the uncertainty of an election in both the short and the long-terms may act to unsettle to economy further. This election is a purely political act, as in many ways is not in the national interest, and could further weaken employment prospects.

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Tuesday, 25 September 2007

Recruitment consultants

A good friend of mine nearly got caught looking for another job today when a recruitment consultant decided to ring him at work. Not only did he call him in work hours, he actually called him on his work phone and left a message with his boss!

Recruitment consultants can be very useful but some of them can be an absolute pain. I've seen the best and worst of recruitment consultants. The best have found me the jobs that I was looking for, prepared me well for the interview and given me regular and quick feedback. The worst send you to interviews that aren't appropriate, don't let you know how you got on and will constantly pester you with news jobs at inappropriate times - even when you've asked them no to.

I would still recommend using recruitment consultants as one of the roads to finding a new job - but I would definitely suggest not wasting time with those that are clearly working more for their own interests than yours.

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Tuesday, 21 August 2007

CV on one page

It seems that there is a trend to get CVs down to one page.

I really want to know who are the people that decide that they wouldn't read a well set out, clear CV that is written on two pages.

I personally prefer two pages. The CVs that I have seen on one page are either lacking in detail or are jam-packed onto one page, making the CV very difficult to read.

Perhaps there is a case for a one page CV for your first job as some employers don't really care about what you've done outside of school or university. Then again many do and I don't think its worth the risk leaving that stuff out!

If you're an employer who'd reject someone with a two page CV then you probably should look twice at your recruitment policy.

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Sunday, 19 August 2007

Article 1 - Tough times 2008

On the surface all is looking very rosy for the UK labour market if you’re looking for a job. Despite a huge inflow of migrant workers since the enlargement of the European Union the number of people claiming unemployment benefit has consistently remained below the one million mark in the last two years and has fallen by over 100,000 in 2007.

Nevertheless cracks are starting to show in the economy. Interest rates have risen five times since July 2006 and are likely to rise one more time by the end of the year. Higher interest rates are likely to hit both consumers and businesses alike as debt repayments become even more of a stretch. It should be noted that increases in interest rates take about a year to feed through to the economy so get ready for last years rate rises to start to hit!

Other weaknesses are showing. The slowdown in the US economy has been going on for most of the year without major consequences for the UK. The recovery in the major EU countries has helped to buffer the reduction in US demand for UK exports. However, the EU recovery is starting to look short-lived. The Italian economy posted very weak growth figures in the second quarter of year, whilst higher European Central Bank (ECB) interest rates are starting to hinder Germany and France.

Nevertheless on the surface it would seem that the slowdown is not having much of an impact on people’s day-to-day lives. Last week’s financial market chaos would have been a big headache for those working in the City of London or those with large share portfolios, but that’s a minority of the country.

The financial chaos should however start alarm bells ringing. It is not yet clear how the current mess in the international financial markets will play out, but if this turmoil continues then the cracks in the economy could well become holes for jobs to fall through. The financial crisis has exacerbated problem – few had been predicted that the United States could potentially move into recession until the events of last week.

It seems unlikely that the UK will suffer as much as the US. There are no credible analyst suggesting that the UK will enter a period of recession, but as the economy is squeezed by higher interest rates and as chaotic financial markets hit business confidence there will be those that will lose their jobs.

The first possible group to see job losses will be those working in the financial and business services sector in the City of London. Initial estimates had suggested that job losses in the City are likely to number a few thousand, but this number is likely to be revised upwards. The impact of this will be relatively limited to the London area.

The next sign to watch out for is a slowdown in consumer and business spending. With the financial markets looking wobbly and with higher debt repayments businesses will reduce their spending on goods and services, and also on headcounts.

Uncertainty in the financial markets leads to uncertainty in the business environment. Plans to invest will be hit as uncertainty increases the risk that they may not be able to afford the repayments in the future.

A slowdown in consumer spending is likely to follow. Higher interest rates will increase the cost of consumer debt repayments, primarily mortgages. However, this is likely to have a limited impact according to the Bank of England.

Consumer spending will also be constrained by the reduction in business spending. As businesses reduce spending employment growth will slow as will wage growth. With less money in their pockets the consumer will stay at home, rather than spending on the high street.

With business spending less on goods and services, those that supply those goods and services will have a reduction in turnover. With consumers spending less on goods and services these suppliers will also see reduced turnover. Lower turnover cause firms to fold or reduce costs; inevitably job cuts will be part of this process.

So when will this all come to a head? Most analysts suggest that 2008 will be the crunch point when the various factors come together to produce an economic slowdown. Expect to feel the pinch wherever you work, there are unlikely to be many sectors that don’t see an impact.

With this warning in hand I would suggest knuckling down and making sure your boss realises that you’re indispensable, even when business is bad! 2008 is going to be a tough year try to limit the suffering.

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