Small firms lead the recruitment drive as Bank faces dilemma on interest rates

Small businesses will lead the way in creating more jobs and reducing unemployment this year, but could add to the problems facing the Bank of England over the timing of an increase in interest rates.

The pace of recruitment among small firms is one of a series of bullish pointers in economic data published on Monday. The financial health of corporate UK is continuing to recover says Begbies Traynor, while Lloyds Banking Group’s spending power report shows confidence among consumers rising strongly over the past year.

Legal & General’s job security index points to a bigger rise in confidence among part-time employees than their full-time counterparts, while the TUC challenges optimism about employment trends, arguing that the chances of being in work in the North East, North West, West Midlands and South West has fallen.

The EY Item Club of forecasters argues that the recovery is “lopsided”. Predicting that the 7pc unemployment rate trigger point for an increase in interest rates is likely to be reached this year, two years earlier than the Bank expected, it warns that any hike should be linked to real growth in wages and not just the jobless total.

Recruitment firm Michael Page is optimistic about the outlook for small businesses after canvassing more than 4,000 of its clients. The results show almost half plan to increase staff numbers compared with 37pc of bigger employers.

Oliver Watson, managing director, says the differences are particularly marked in the main business hubs. More than 40pc of small firms in the South East planned to increase their headcount against 20pc of bigger companies.

Around 60pc of small businesses have put recruitment of professional services staff as their job priority. The jobs trend was most strongly marked in the motor vehicle, construction and manufacturing sectors.

The number of companies in critical financial distress continued to recover in the third quarter, says Begbies Traynor, citing improvement in business confidence and encouraging growth in start-ups.

The total in a critical financial state dropped 1pc to 2,951, with pressures on retailers eased by Christmas trading.

Lloyds says the pick-up in the economy along with the slowdown in the inflation rate is being reflected in the rise in consumer confidence but the rising cost of energy is causing increasing concern.

The proportion feeling negative about the financial situation increased slightly to 77pc. The 55 to 64-year age bracket is most pessimistic, with 87pc declaring it is “not good” or “not good at all”.

The EY Item Club warns that a more balanced economic recovery with higher business investment and exports will be crucial before the Bank of England’s Monetary Policy Committee considers increasing interest rates.

Peter Spencer, the club’s chief economic adviser, also feels an increase in wages will be needed to avoid loading more debt pressure on employees. He said: “It is hard to find another episode in time where employment has been rising and real wages falling for any significant period of time. The weakness of real earnings is proving the Government’s Achilles’ heel and could prove to be the weak spot in the recovery.”