Keep calm and carry on hiring

8 August 2022

Yesterday’s blog post ended on the Bank of England’s assertion that businesses feel able to set prices to cover the increases caused by inflation without a lot of resistance from customers, as the Bank governor put it. Does that apply to tool hire? 

Certainly, on one hand, the blog has previously reported on hirers who say they have indeed been able to raise hire rates because of intense customer demand, equipment shortages and inflationary pressures. 

Others, however, have found it more difficult because of customers’ traditional reluctance to pay more, a situation not made any easier by the removal of the red diesel rebate in construction and the extra cost of switching to white diesel.  

So it’s a mixed picture. Some markets should remain strong, including power generation and house building, while others might become more challenging like hospitality and purchases influenced by discretionary spending, such as garden makeovers, perhaps making it correspondingly more or less easy to raise hire rates. 

However, if we do enter recession later this year (two consecutive quarters of declining gross domestic product, or GDP) it will be quite different from others. 

Technically, the last recession was as recent as August 2020, as the blog recorded at the time. That was brought about by the pandemic and the furlough scheme whereby the government effectively paid people to stay at home and not work. GDP fell by an astonishing 20.4 per cent in April 2020. Once lockdown restrictions were eased there were sharp increases in June and July. Recession only lasted two quarters. 

The previous recession from Q2 2008 lasted five quarters, was much more serious and was caused by completely different factors to those facing the economy now. Chief of these was the ‘sub-prime’ mortgage crisis that originated in the US (and which included the aptly named phenomenon of Ninja loans made to people with No Income, No Job or Assets). There was also industrial scale fraud amongst banks and hedge funds. 

This led to banks failing and to the ‘credit crunch’ whereby banks lost people’s trust and became hugely restricted in what they could lend. 

Indeed, Alistair Darling, UK chancellor at the time, later recalled it as “a situation in which the world banking system was on the brink of collapse.” 

Those of us who lived and worked through that time will remember how almost overnight business came to a standstill. In the early days we thought the phones had been cut off. Construction sites closed, kit was returned en masse, many people took wage cuts or lost their jobs and we waited for normality and confidence to return. 

This time the background looks very different. Above all, since the first lockdown the construction industry has remained healthy, which is positive news for the hirers who serve contractors. 

And it was striking that last week a member of the Bank of England’s interest rate-setting monetary policy committee suggested that rising inflation would not slow house price growth to the extent of the financial crisis in 2008. He saw “some resilience and we’re not going to see the dramatic downturns we’ve seen in the past.” 

The jobs market has also remained remarkably buoyant thus far.

No one should doubt that there will be challenges ahead, which some companies will weather better than others. If inflationary pressures cause work to be postponed or cancelled as clients wait for price corrections, that might affect cash flow for contractors and, in turn, for their suppliers. 

Rising prices and the significant increases in the energy price cap this autumn will squeeze household budgets. Having said that, some analysts predict inflation falling back to its 2 per cent target within around two years.

What brought companies through the 2008 credit crunch – and indeed the lockdown's aftermath – was sound business management, effort and dedication. It will be the same this time, if recession does occur. 

So evaluate your own circumstances rather than relying on general industry overviews, have faith in the team around you and trust your own judgement. 

In other words: Keep calm and carry on hiring.