Interest rate rise ‘could force recruitment agencies to close’

Nick Elvin

A rise in interest rates could lead to some smaller recruitment agencies going out of business, the chairman of temporary recruitment industry alliance, tempo has warned.

Keith Faulkner has predicted an interest rate rise will take place in the second half of 2015, despite Andrew Haldane, chief economist at the Bank of England, commenting in a recent speech that rates should remain low for now, in order to avoid long-term economic stagnation.

“No-one can predict when the banks will move on interest rates given the many different factors involved,” said Mr Faulkner. “However my current view is that it will be the autumn of next year, probably in September or October 2015.”

He said uncertainty over the result of the general election in May is making many businesses nervous, and he predicts a “probably fragile coalition of some sort” being the most likely outcome of the vote.

“If business sentiment is remaining weak when interest rates rise, the uncertainty could result in more businesses using temporary labour rather than employing more permanent staff,” he said. “So for contractor workers this rise in interest rates may mean a rise in job opportunities.

“As for recruitment agencies, interest rates will have a negative impact on their cost of borrowing, for those relying on factoring or invoice discounting to pay their workers. Smaller agencies working on these models may find this the most difficult and it’s possible the industry may see a number of agencies disappearing altogether as a result of an increase in interest rates.

“The increased cost of borrowing may cause a downward pressure on margins, having a knock on effect which, in some cases, could result in decreased pay rates for contract workers.”

Mr Faulkner had this advice for businesses using temporary labour, in the event of an interest rate rise: “It is important to look very carefully at the agencies you use, especially once interest rates rise.

“Ensuring agencies are operating in an open and ethical way and understanding how they are adjusting to the change in the economy, is important to ensure continuity and reliability of staffing services.”