The predicted decline in the demand for private sector jobs in coming months may have a significant impact on the recruitment sector, warns Bibby Financial Services.

The demand for new staff in the private sector is currently counterbalancing the sharp decline in public sector jobs, which has come as a result of the Government’s measures to tackle the nation’s deficit. However this will not continue, according to the Labour Market Outlook quarterly report from the Chartered Institute of Personnel and Development (CIPD) and accountant KPMG.

With unemployment levels forecast to rise in the public sector over the next two years, due to 600,000 planned job losses, the recruitment industry is facing the likelihood of a significant decline in business output and additional pressure to place more candidates in fewer roles in the private sector.

Edward Winterton, recruitment finance specialist at Bibby Financial Services comments: “The findings from the recent CIPD report, which suggest that demand in the private sector will not be enough to offset the expected redundancies in the public sector, are a concern to the recruitment sector, which has already been severely hit by the recession.

“Furthermore, we know from reviewing the outlook and performance of a range of businesses in our own research* that over a third (33 per cent) of recruitment agencies have experienced a stabilisation in trading conditions over the past quarter and as a result have become more positive about the future of their business. This suggests that the challenges presented in the coming months will come as a blow to many. It is therefore crucial that agencies are not complacent and ensure they are prepared for another tough spell ahead.

“The issue of cash flow and survival are intrinsically linked – we all know that good credit management is essential for any business, particularly in these uncertain times. Therefore, it is vital for firms to ensure they have sufficient cash flow plans to cope with the predicted drop in their business.

“Retaining clients and seizing new opportunities to maintain stability and drive revenue in their business is key for recruiters. With this in mind, outsourcing back office functions, such as payroll and chasing late payments, as well as ensuring a regular and smooth flow of cash into the agency, can also save valuable management time, allowing recruiters to concentrate on their business.”