Ris­ing staff costs main risk for busi­ness ser­vices sec­tor post-Brexit

Financial Mirror (Cyprus) - - FRONT PAGE -

While higher staffing costs are likely to be the big­gest chal­lenge for Europe’s rated busi­ness ser­vices sec­tor post-Brexit, the sheer di­ver­sity of the sec­tor, which in­cludes fa­cil­i­ties man­age­ment firms, travel ser­vices, staffing com­pa­nies and pri­vate ed­u­ca­tion, will make it rel­a­tively re­sis­tant to any fall­out, Moody’s In­vestors Ser­vice said in a new re­port.

“Pres­sure on staff costs is likely to in­crease if stricter con­trols on mi­gra­tion are in­tro­duced, but our ini­tial view is that, over­all, the ge­o­graphic and mar­ket di­ver­sity of busi­ness ser­vices com­pa­nies is likely to make the sec­tor rel­a­tively re­silient to the ef­fects by Brexit,” Martin Hall­mark, au­thor of the re­port.

The im­pact across the dif­fer­ent sub­sec­tors will vary. The fa­cil­i­ties man­age­ment out­sourc­ing sec­tor is one of the more re­silient, with high lev­els of di­ver­sity and ac­tiv­i­ties deeply in­te­grated with cus­tomers’ op­er­a­tions. It has also man­aged to main­tain or im­prove mar­gins dur­ing a pe­riod of wage in­fla­tion and fall­ing un­em­ploy­ment rates in the UK.

The travel ser­vices sec­tor is more vul­ner­a­ble to changes in con­sumer de­mand, with high fixed costs and rel­a­tively low mar­gins, and could be af­fected in the near term by a weak­en­ing in UK con­sumer con­fi­dence.

The pri­vate ter­tiary ed­u­ca­tion sec­tor re­lies on de­mand from stu­dents out­side the UK and faces risks from any tight­en­ing of mi­gra­tion con­trols, as this could hit their abil­ity to at­tract in­ter­na­tional stu­dents and teach­ing staff. How­ever, ster­ling weak­ness makes UK ed­u­ca­tion more com­pet­i­tive.

The staffing sec­tor could be at risk from re­duc­tions in hir­ing and is rel­a­tively highly ex­posed to the changes in eco­nomic ac­tiv­ity. Less di­verse staffing com­pa­nies with high UK con­cen­tra­tion in vul­ner­a­ble sec­tors such as fi­nan­cial ser­vices, con­struc­tion and oil and gas are likely to be hit hard­est.

The UK leav­ing the EU is less of a threat to the ser­vices sec­tor (non-fi­nan­cial cor­po­rates and ex­clud­ing fi­nan­cial ser­vices) be­cause mem­ber­ship does not pro­vide an in­te­grated EU trade in ser­vices. While there are gen­er­ally no tar­iffs, there are sig­nif­i­cant tech­ni­cal bar­ri­ers to trade in the form of vary­ing lo­cal reg­u­la­tions.

The steep de­cline in ster­ling since the UK de­cided to leave the EU is likely to have a rel­a­tively lim­ited ef­fect on the cred­it­wor­thi­ness of busi­ness ser­vices com­pa­nies.

Many will see some in­crease in lever­age al­though Moody’s does not ex­pect this to be sub­stan­tial in most cases.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.