More than half of the companies in the UK are planning to axe jobs in response to the economic downturn, a survey published today suggests.

According to business services group KPMG’s National Business Confidence Survey, the number of companies likely to make job cuts has almost doubled over the last three months. KPMG’s survey of senior executives in both public and private sector organisations indicates more than half (53 per cent) now plan to reduce their staff headcount over the coming months, with a similar proportion (52 per cent) planning to implement recruitment freezes.

When the same organisations were question in March this year, only 29 per cent were looking at job cuts as a cost-saving measure.
Mel Egglenton, senior partner of KPMG in Birmingham, said of the latest survey: “The clouds that were on the horizon when we first conducted this survey back in early spring are now right overhead, with businesses now feeling the impact of this so-called ‘perfect storm’ of rising inflation, tightening credit conditions and plummeting consumer confidence.

“With six out of ten businesses looking to cut costs, staff redundancies may seem like the obvious, albeit painful, solution. The widespread redundancy programmes we have already seen in the financial services and housebuilding sectors may therefore just be a small sign of things to come.

“It is particularly interesting to note that eighty percent of the organisations who took part in our survey were based outside London, signifying that the credit crunch may finally be hitting home across the UK regions.

“There were certainly arguments in some quarters at the beginning of the year that it was primarily the City of London that had been caught in the eye of the storm, and that the rest of the British economy may escape relatively unscathed. However, there’s now no denying that we’re all in this together, possibly for the long haul.”

KPMG says that, unsurprisingly, the general mood of British business darkened significantly during the second quarter, with 75 per cent of executives confirming that their organisation has been affected by the credit crunch.

Only 40 per cent of those surveyed now feel optimistic about their own company’s prospects for the forthcoming year, compared with 60 per cent who were feeling bullish in March. Companies also seem resigned to the fact that they could be in the doldrums for some time to come, with 56 per cent expecting the current economic conditions to have a negative impact on UK business for one to two years.

Sixteen per cent think that it will be between two and five years before we see an upturn in fortunes. Other key findings include:

*Rising inflation remains the greatest concern for most organisations, with 77 per cent believing it will spark increases in costs, 70 per cent believing it will hit profit margins and a further 67 per cent expecting it to prompt higher wage demands from staff.

*The majority (52 per cent) want the Bank of England to hold interest rates at the current level, with more than a third (35 per cent) taking the view that no-one has benefited from previous rate cuts.

*However, since last quarter’s survey there has been a fall from 55 per cent to 41 per cent in those who want interest rates to be cut. Nevertheless, only seven per cent think interest rates should be increased.

*More than half of those questioned believe their rate of capital expenditure will remain at the same levels over the coming year.

“In tough times, being nimble can be crucial to an organisation’s survival,” said Mr Egglenton. Those businesses that have taken steps already to reduce costs and improve cash flow are to be applauded as these may have averted trouble further down the line. Conversely, I would say to those who haven’t altered their strategy that a ‘business as usual’ position is certainly not the one to assume.

“It is far better for management to interrogate their forecasts, talk to their customers, question their spending and analyse their use of working capital.

“Organisations should also be seeking out new opportunities, either by developing new products or by tapping into new markets.

“With the eurozone already buying approximately 60 per cent of UK exports, and with the increasing purchasing power of new and emerging markets such as India and China, there are certainly opportunities out there to be grabbed by those who are fleet of foot.”