My Predictions for the UK Financial Services Job Market in 2023

When it comes to the UK job market, we’ve all forgotten what normal looks like over the last 2-3 years. As a reminder, the bottom fell out of the job market in 2020, bounced back and subsequently caught fire in 2021. It then grew even further in H1 2022 before falling off considerably over the second half of last year. 

Whether you are (or have been) a candidate looking for a new opportunity, a Recruiter/Headhunter reliant on commissions, or an in-house HR/Recruiter dealing with the usual challenges of feast or famine - it's been quite the rollercoaster!

So here we are at the start of a new year, and more in keeping with January 2020 than 2021, there are once again some serious headwinds on the horizon. The doom and gloom has already started in the media, but is it time to panic? Should candidates be sitting tight and protecting what they have rather than exploring the market? Should anyone out of work be concerned about finding meaningful work again in the next 12 months? Should Recruiters be looking for a change of career? Will you still experience a candidate driven market if you’re fortunate enough to get the greenlight to hire?

These are all reasonable questions to be asking, but a sense of perspective is required before even attempting to answer them (which I go on to do in my concluding comments). I’ve worked in financial services since the 1990s and I’ve witnessed a number of setbacks for the job market from truly cataclysmic events to the ‘run of the mill’ downturns you would expect to experience in economic cycles, and everything in-between. Some of these setbacks have been notably more severe than others. Certainly, the three that stand out for me were in:

·                            2001 - after the combined fallout from the tech bubble/crash and 9/11; 

·                            2008/2009 - after the devasting effects of the credit crisis; 

·                            2020 - the self-inflicted disruption brought about by Covid restrictions.

This perspective is important because not all crises in the job market are built the same. Not all are as far reaching or as damaging as those three referenced above.

ECONOMIC HEADWINDS

The headwinds right now are significant and well known. We have high inflation, high interest rates and a cost of living crisis affecting all but the most affluent of workers. Certainly, 2023 will be tougher for most of the global economy than 2022. However, some of the most recent data in the UK and U.S. is more encouraging with clear signs that inflation is peaking, consumer spending is steady and stock markets are rallying etc. So whilst the threat of recession is real, it’s no longer a foregone conclusion. Furthermore, whatever type of recession we eventually experience, it’s now clear that it won’t be as hard hitting as those previously mentioned.

LABOUR MARKET TIGHTNESS

Despite all this economic uncertainty, labour markets continue to show signs of tightness thanks to significant demographic shifts, an aging workforce, an historically high number of unfilled openings in many countries and a mismatch in expectations in pay and remote working requirements. That said, a recent Bank of England survey revealed that the proportion of firms reporting that it’s ‘much harder’ to recruit has tumbled over recent months from roughly 60% last summer to 38% now. No doubt some of that feedback is based on there being less competition. Meanwhile LinkedIn’s ratio of job openings to active applicants, their measure of labour market tightness, suggests that most western labour markets including the UK are tighter now than before the pandemic, and the ratio remains nearly double the pre-pandemic average in several countries including U.S. and Germany.

 

Even as central banks’ interest-rate hikes bite and economies slow, it’s likely that labour shortages will continue to exist in many countries for the foreseeable future. One sign of ongoing labour shortages is that workforce participation still hasn’t recovered to pre-pandemic levels, mostly due to demographic changes (i.e. an aging workforce) and child-care responsibilities. The UK media and politicians have picked up on the large numbers of over 50s who have seemingly dropped out of the labour market. These factors, amongst others, mean that the U.K. will be stuck with labour shortages for some time regardless of whether or not there’s a recession.

Of course, mass redundancies across the board would change that picture, but my view is that there won’t be job losses of a scale to change these prevailing dynamics.

JOB LOSSES

Layoffs and redundancies already started in earnest last year with a variety of well-known firms such as Salesforce, Amazon and Twitter reporting a reduction in force both in the U.S. and over here in the UK and Europe. As the cost of living erodes demand for goods and services, companies clearly have less of a need for workers. So, after a period of exponential growth, the technology, information and media industries in particular are seeing an inevitable reversal of the over-hiring that happened during the pandemic. 

Financial Services is far from immune from all of this of course with Fintech already having been impacted last year, and we have started to see some large rounds of layoffs from banks such as Goldman Sachs and most recently BlackRock - the world’s biggest Asset Management company. It’s clear some Financial Services companies have over-hired and overpaid in a post pandemic hiring frenzy and I wouldn’t even include the aforementioned in that, I just think they’ve been quicker to act.

WHAT DOES ALL THIS MEAN FOR THE UK FINANCIAL SERVICES SECTOR JOBS MARKET IN 2023?

To answer this question properly, it’s important to recognise that Financial Services is a ‘broad church’, so we need to take things down a level and break things down by sub sector and look at the very different functional jobs markets that cut across the FS sector as a whole. The graph below uses my own data from the City Career LAB Job Market Index over the last two years and shows how these distinct talent markets have been performing relative to each other.

Certainly, high interest rates have put pressure on the Banks and Lenders as their business models are not as healthy in this environment. Investment Banks in particular, are suffering due to a big drop off in deal flow and the mixed fortunes of their market divisions. This has had an impact on profits and bonuses, and over the coming months will also put pressure on costs - meaning both layoffs and an aversion to adding new headcount at previous rates. This is what made efinancialcareers lead with the headline “Banking Jobs in 2023: After the over-hiring, the over-firing” on the 1st January.

But conversely, high Interest rates are good for some areas of the FS industry. Take Insurance for instance. A large portion of their profits used to come from investing insurance premiums in fixed income investments, and until relatively recently, a low-rate market for more than a decade had put huge pressure on their business model. Since rates started to rise, we have seen a lot more resilience in the Insurance job market relative to others.

The Asset Management sector typically tracks what’s happening in the banking sector, but the peaks and troughs are rarely as extreme. Stock markets typically fall when interest rates go up, which puts pressure on your traditional long only equities managers that rely on AUM growth, but this also creates opportunities for those Managers with a broader product set. Alternative Managers should benefit as Investors look for diversification. However, it’s the long-only traditional Managers that account for most of the Asset Management workforce, so it doesn’t go unnoticed when they pull back on their hiring.

Fintech has long been the hottest area of Financial Services recruitment, but that demand fell away considerably in the last 6 months as P/E money has started to dry up and markets have questioned the high valuations of tech companies in general and of course the fall out around FTX and nervousness around Crypto has also taken its toll. That said, for every Fintech that’s cutting costs, there is another that’s scaling up and needs to hire still.

The Wealth Management & Private Banking sector has proven to be quite resilient over the last two years and in theory it should continue to hold up well as there is more demand for these services in uncertain times. HNWIs after all are said to fare better than most in a recession and they need more advice around what to invest in - not less. I'm not saying there will be a flood of vacancies in this area, but just like in Insurance, I can't see it being adversely impacted either.

Finally, the Information Services sector supports all of the above, but given its reliance on the dominant Banking sector, when Banking suffers, so do they, so I’m not surprised to have seen demand in that sector drop off as much as it has.

From a Functional perspective, jobs in the middle office/ corporate functions areas such as Compliance, Risk and Finance/Accounting should continue to flow, and whilst Technology jobs have fallen considerably in the wider UK market, there is still an appetite to hire in Financial Services as many firms continue to invest in transformation. Any revenue generating roles will rightly focus on profitable businesses or coverage gaps. Interestingly, whilst the HR function may be busy with layoffs, their recruitment functions have been shrinking in line with the hiring volumes.

WHAT ELSE CAN WE EXPECT TO SEE?

There are two other factors that will influence the dynamics of the jobs market in UK financial services that deserve a special mention. Firstly, Internal career mobility will become an increasingly important priority for larger and more mature organizations around the world as a way of redeploying and retaining talent. Secondly, demand for contractors, freelancers and gig workers should continue to increase relative to the demand for permanent FTEs as many organisations choose to hedge their bets and address talent needs through more a more flexible approach to staffing. 

CONCLUSION

Despite the economic headwinds and doom and gloom in the media, the UK job market including financial services is still open for business. The global Job Board Aggregator Indeed summed things up nicely when they reported in December 2022 that there were “Tough Times Ahead for the UK Economy”, but that the “Labour Market Remains Resilient”.

Most importantly from my perspective, and as the FS Job Market Index above illustrates, the market has already fallen off considerably from its peak in spring last year. It would appear to me that any future drops related to the economic headwinds are already accounted for and are effectively ‘priced in’. The hiring frenzy and top of the market is behind us, but I’m not predicting that the roller coaster will hit new lows.

Getting back to my earlier questions then………..if you’re a recruiter on the agency/search side of the fence then you will still see a good flow of work as you’re benefitting from a tight labour market. If you’re in-house, you may have noticed a drop off in workloads, which is probably a welcome relief, and hopefully you have some internal mobility, contractor hiring or redeployment initiatives to keep you out of trouble. If you’re a Hiring Manager then headcount is going to be hotly contested and you can’t expect less roles to add up to candidates wielding any less power, and finally, if you’re a candidate in or out of work, then you’ll see less jobs advertised, but there should also be less competition!

My concluding message is quite simple. Far rom being a disaster zone, the UK Financial Services Job Market in 2023 will actually look and feel more ‘normal’ than it has for some time.