(Bloomberg) — UK businesses are moving more traditional head-office jobs outside of London after a surge in the cost of living and housing costs makes it cheaper to employ people elsewhere.
Data on vacancies from the analytics firm Vacancysoft provided to Bloomberg shows London-based postings in executive management, human resources and marketing have dropped to 41% of all open roles. Before the Covid-19 pandemic hit in 2020, London had almost 50% of those jobs.
Advertisements for remote work also doubled over that period, while there were also gains in the North of England and the Midlands. The findings suggest London is struggling to maintain its status as the go-to place to live and work, adding to the challenges Mayor Sadiq Khan faces in his bid for a third term.
“For policy makers looking to stimulate the London economy, these findings should cause concern,” James Chaplin, chief executive officer at Vacancysoft. “The trend to regionalization is undeniable. Occupancy ratios remain below pre-pandemic levels. Meanwhile Manchester increasingly is positioning itself as the capital of the North.”
Businesses have been growing at a quicker pace outside of London in recent years after inflation pushed up salaries and remote working trends led to smaller offices. At the same time, London-focused employers in banking, consulting or tech tightened their purses last year after high interest rates and a lackluster economic outlook dampened appetite for their services.
While the Prime Minister Rishi Sunak’s government has sought to “level up” areas outside London, the capital historically has been an engine of UK economic growth. A slowdown anywhere isn’t helpful for the ruling Conservative Party, which is trailing the Labour opposition in polls.
The Vacancysoft data chimes with official figures on the labor market showing a slowdown in the pace of hiring over the past year, after a frenzy following the end of pandemic lockdowns triggered companies to scramble for staff.
Firms posted fewer jobs in the capital than in 2019, while roles in almost all other regions grew by double digits over the period, Vacancysoft estimates. London also saw a 50% annual fall in vacancies in 2023, the largest drop in any region.
The retail and consumer goods industry, the largest employer of head office workers, has been steadily expanding outside of London over the last five years. Banking is another sector that’s shifting growth plans outside the City, as the likes of HSBC Bank Plc or JPMorgan Chase & Co. have been migrating functions and scaling up their regional hubs.
Covid and hybrid working also supported businesses moving people outside of London. Video calls and better technology made it easier to communicate with other offices, while workers have become more reluctant to put up with long commutes. That’s led firms to rethink that roles can be relocated outside the capital.
Britain’s stagnant economy also part in reducing London’s footprint in the jobs market. The UK slipped into a recession at the end of last year, and the Bank of England pushed up borrowing costs to fight inflation. A slowdown in deal-making and dwindling confidence in the outlook reduced hiring for banks, law firms and professional services in the City of London.
There’s some areas where London is building an edge. The capital has expanded its share of tech vacancies since 2019, reaching almost 62% in 2022 before dipping last year. Chaplin said he expects London tech hiring to bounce back as financing conditions improve.
“The softening in the economy and the recession seems to have affected London more than other places,” said Paul Swinney, director of policy and research at Centre for Cities.
Even as the economy recovers, London’s soaring living cost remains a challenge to attract and retain young professionals. Rents in the capital surged over £2,000 ($2,524) a month, while homes still cost 12 times average annual earnings, recent figures from the Office for National Statistics showed.
“People graduating from Manchester University for example, no longer feel they have to go to London to advance their careers,” Chaplin said. “Manchester has leading institutions across finance, law and technology clustered there.”
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