AS the credit crunch bites, forecasts of redundancies in the City of London are climbing, with latest predictions ranging from 10,000 to 20,000 before the end of the year.

It’s a couple of months since John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD), warned human-resources departments it was time to “dust off” their redundancy manuals. As far as investment banks are concerned, he has already been proved right.

Is the downturn, though, obvious in recruitment trends in the wider economy? Are we already seeing the beginnings of a significant slowdown or recession?

Ask recruiters and most tend to respond bullishly. They claim to see no signs of a downturn and warn that people — and journalists in particular — could talk Britain into recession, if they aren’t careful.

Of course, if that’s the power of words, then presumably people — and recruiters in particular — can also put a shiny but misleading gloss on unpleasant or worrying trends.

Matthew Parker, managing director of online recruiter StepStone, insists he can see no signs of a downturn yet — either on the firm’s jobs boards or in the software and services side.

He said there was actually an increase in demand on both sides of his business. “We’re having trouble recruiting enough talent for our own company,” he said, indicating that the so-called war for talent has not abated.

StepStone might be expected to recognise a slump when it sees one. It almost went belly up in 2001 following the bursting of the dotcom bubble. Parker agrees that a less rosy recruitment picture is what one would expect by now, given the American economy’s problems.

“A dip in recruitment here would be a justifiable assumption and yet we’re seeing the opposite — a continued focus on recruiting and retaining the best talent,” said Parker. “Employers have been competing hard for the best and they’re only seeing an economic downturn in some sectors.

“They aren’t really sure a wider downturn is actually coming and so they don’t want to take their foot off the recruitment pedal and find in a few months that it was only a minor downturn and they have lost out on talent to competitors. That’s a big risk in this kind of situation.”

If Parker is right, employers may be taking a longer-term view about the health of their businesses. However, latest figures from the monthly Report on Jobs, put together by the Recruitment & Employment Confederation (REC) and KPMG, are less upbeat, showing that in February the number of permanent appointments dropped for the first time since May 2003.

The REC puts the fall down to “a slowing in the growth of demand” and continued shortages of skilled staff: a mix, if you like, of don’t want and can’t find. The report also shows temping/freelancing vacancies up and wage inflation slowing.

The findings chime with a Labour Market Outlook survey from the CIPD and KPMG that reveals a sharp rise in the proportion of employers planning redundancies in the near future. Two in five intend to make some staff redundant — almost double the figure for last autumn and the highest figure since 2004.

“It’s a delicate time for the labour market,” said Tom Hadley of the REC. “The feedback from recruiters is more positive than you would expect, but the last report did show that we are starting to take something of a hit on permanent staff. So there is some impact, but it’s not the disaster some were predicting.”

Hadley, like Parker, believes that employers now realise that even in uncertain times good staff still need to be recruited and retained. He also said the numbers of people registering with recruitment agencies had not fallen — quite the contrary.

He admits, however, that registering an interest in moving is not the same as accepting a job. Employers are not the only cautious beasts in uncertain times — nervous candidates may also be affecting recruitment patterns.

“The only change we can see is an increasing reluctance in people to move,” said Paul Ryder, of the high-street bank HSBC, who reports a lot more questions from candidates about their security of employment.

The fear seems to be that last in will be first out in the event of a downturn. Ryder said HSBC had reassured candidates it did not operate that way.

Eric Lochner, managing director of recruitment firm Kenexa, has noticed similar fears. “Generally speaking, candidates do become more risk-averse in this kind of circumstance,” he said.

Steve Huxham of the Recruitment Society agrees and believes there is a danger in the inertia that can set in. “The fact is that while employers need to work hard to keep the people they have, they also need fresh blood coming in. That can dry up in a situation like this.”

It is a particularly frustrating trend for Huxham and others who argue that we are not in a downturn.

Huxham points out that our economy is still thriving and that, though plans for redundancies have risen, recruitment rates still exceed forecast lay-offs. “We need to keep a balanced view,” he said.

When would Huxham start worrying? “When recruitment companies start to look for clients,” he said. “At the moment talent shortages mean that the recruitment companies have the whip hand. When the balance of power swings back towards the client companies, that’s a good benchmark of downturn. That certainly isn’t happening yet.”

Huxham urges jittery employers to think hard before introducing recruitment freezes and layoffs. “They suggest blind panic in organisations,” he said.

As London’s investment banks raise the axe, Huxham said that his advice applied even to them. “Even the City will be needing people again in six months,” he said. “Will candidates really believe these banks see people as their greatest asset if they go for large-scale redundancies now?”

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