I thought it may be appropriate, as some of the “knee-jerk noise” is dying down, to give you my reflections on the initial market reaction to the BREXIT vote.  Over the past month, my senior team and I have been sounding out our customers as to the general mood, current trading conditions and thoughts for the coming 12 months.  We’ve also done some analysis on our own KPIs over the last three months to provide some context.  This is not 100% scientific but I hope it will provide you some holistic insight into current sentiment and trading conditions.

If You Can’t Join ‘Em…..

To borrow the headline and quote from the latest NM Rothschild insight paper (“Market Perspective July/Aug 2016”):

“If you can’t join ‘em, beat ‘em” – Uffe Ellemann-Jensen, Danish Foreign Affairs minister, when the Danish football team won the European Championship after Denmark’s voters rejected the Maastricht Treaty in a referendum (June 1992).

In his foreword to this latest insight, Kevin Gardiner, Global Investment Strategist at Rothschild Wealth Management, says: 

“We have been suggesting that Brexit would be bad news for business, but not in a game-changing way. Now we’re going to find out. It heralds the biggest test so far for our seven-year-old “muddle through” scenario. The months ahead are hugely uncertain: it is impossible to predict confidently how this unprecedented situation will unfold. Nonetheless, we’d suggest that political turmoil is no guarantee of additional market trauma: economies can grow and markets stabilise even as governments remain in disarray.”

In a week where our new Prime Minister has now been confirmed, as has her Cabinet, I reflected on the last month and realised that day by day, week by week, a slightly calmer horizon is appearing, although some sectors are suffering more pain than others.

Demand

From April to June 2016 (our Q1), total new vacancies registered with Oakleaf remained constant, although across the business we were 22% down compared to the same period in the last financial year.  Revenues, however, have held up, perhaps reflecting some more senior tactical hiring and the ongoing strength of the temp/interim market.  More positive news is that, as the dust settles, we have witnessed some improvement in July (to date) with overall new vacancies registered back up and approaching volumes from Q4 (Jan/Feb/Mar).  The mood is definitely feeling more positive, as a “business as usual” sentiment creeps back in.

In the Financial & Professional Services sectors, new mandates for the quarter were 31%down YoY but for July, so far, we are looking like we will approach equivalent Q4 15/16 volumes.

Client sound-bites include:

• Non EU HQ banks/FS firms are stating business as usual, and still actively hiring
• In the last 2 weeks we have registered 46 new roles, at a mix of levels, both temp and perm
• A number of clients have seen up to 30% drop in applications for permanent roles directly sourced – candidates seem much more cautious about applying to direct client adverts on-line
• The word “uncertainty” comes up a lot, but the phrase “business as usual” does also

In our Commercial Division, like for like new mandates were down 32% for the period but, again, we are experiencing something of a July bounce.

Client sound-bites include:

• Interim projects starting to move again
• US firms still pushing forward with roles in Europe with London still being the focus -confidence in new trade agreements between UK/US & APac
• Most clients are taking the view of getting on with it and no one is moving yet…Vodafone are making no immediate decisions on changing the location of their Global Head office remaining proud of their British Heritage.
• Construction and building has been hit hardest

In our 3rd Sector/NFP Division, the Public Sector continues to remain a challenging market, for obvious reasons.  Encouragingly, however, the recent announcement regarding the easing of austerity measures may well have a positive impact.  In the NFP sector, caution remains with challenges around fundraising, given the likely rise in inflation and associated drop in real income domestically and the relationship with the EU more broadly.

Bucking the trend, post-Brexit, is our Payroll Division.  There was an 8% rise in new mandates over the period and a strong first half of July to continue the momentum with a genuine 50-50 split between temporary and permanent appointments.  Across all industries FS/PS, C&I and Third Sector there seems to be positive sentiment and a “rolling your sleeves up and just getting on with it” mentality.  Our Reward Division is 27%down for the period but also experiencing a strong bounce in July to date (new mandates up 9% MoM).

Client sound-bites include:

• Reward vacancies remain stable at mid-levels (up to c £80k).  We are fully expecting a growth in interim work but senior perm mandates appear to be in a holding pattern for the time being
• The profession is being asked to model a number of post-BREXIT scenarios, including mobility assessments and the impact of a potential rise in inflation
• In the absence of any indication from the PRA a number of firms are modelling potential changes to remuneration regulation, including the removal of the bonus cap

Across our Human Capital Services Division (Immigration/Ex-Patriate management), we had our second biggest month ever in June for new assignments and recruitment processes are moving a lot more quickly than pre-BREXIT.  The word “uncertainty” seems to be flavour of the month but the reality is that our clients are business as usual and people need to be in work.  The roles on offer are exciting, challenging and paying market rates.

Client sound-bites include:

• Everyone was waiting to see what was going to happen, but now it has, people are just getting on with it
• A short term uplift in consulting work
• Some firms have already initiated repatriation programs out of the UK as they are not going to wait for the negotiation
• Significant worries about losing the financial passport

Our Birmingham based Regional Division is our newest business and they are storming ahead.  The regional impact seems far less than within the M25.  At the HRD level, they have secured two senior retained searches and are also working on an HRD role in FMCG. The mood is definitely more positive in the Midlands.

Our nascent Part-Time business is bearing up well and I suspect their job list may well grow over the coming months also.

New Mandate Skills & Salary Levels 

Across the company, the largest number of new roles registered (38%) in June were for Generalists/HRBPs.  Recruitment/TA represented 17% of the roles: interestingly, we have had a consistent flow of recruitment roles into the business since January 2014.  However, Learning & Development, although a skill set still in demand, had seen a fall-off in the number of new vacancies since January and represented just 7% of roles in June.

Roles by salary level were evenly split ‘up to £49,999’ and ‘from £50,000 to £99,999’.  Whilst there are naturally fewer roles over £100k, we registered a 100% increase in day rate and fixed term contract roles from April to June, perhaps reflecting hiring managers feeling of slight nervousness prior to the referendum and steering away from senior permanent hires.

Across the company, we have also noted a marked improvement in more senior (£100kplus base salaries) in the last month, which is slightly surprising but encouraging.  The17 roles we are working on currently are cross-sector, including FMCG, Retail, Bio-tech, Banking, Consultancy, Insurance and Asset Management.  My feel is that the more junior market has become “client driven”, whereas the more senior market has become more “candidate driven” for the first time in a while.  A common client comment is that direct souring applications are significantly down over the last few months; perhaps increased candidate caution is driving both of these phenomena.

Summary

This is obviously a period of some uncertainty but as time moves on, post-BREXIT, the mood of “Ops Normal” is definitely gaining ground. Whilst the result surprised most people, the contingency planning (as best as it could be) for the out vote meant that much of the initial reaction was an emotional, sentiment-driven one.  As the reality sinks in, and the political landscape stabilises, I believe we are likely to witness some market improvement, albeit with a 6 month hiatus from Q4 last year and Q1 this year.

And Finally…..

Here are the words of advice from last week from a senior and respected Analyst of a FTSE business:

• Face up to it – look forward not backward
• Massive political uncertainly for both the main parties – existential threat
• Politics is not synonymous with investment. The economic outlook has not been turned upside down!