What recruitment firms and housebuilders success could mean for the UK

Recruitment firms are seen as bellwethers for the health of the economy, so recent share price strength raises the question of whether we are seeing a legitimate signal of growth or just a relief rally after a long period of weakness.

The performance of recruitment firms is often linked to broader economic performance because it moves with the job market: when companies are hiring, recruitment firms have more business, and more people are going into the workforce. When firms are struggling, they struggle too.

In the past few years, the recruitment sector has been unloved with share prices trading at multi-year lows, reflecting a prolonged downturn in global hiring trends.

An increasing focus on AI-driven efficiencies is also weighing on companies as they reassess jobs and favour temporary positions over more costly permanent roles.

However, share prices have rallied strongly over the last month, sparked by an unexpected positive trading update from Hays, which confirmed it’s on track to deliver profits at the top of its guidance range.

The news sent a lightning bolt across the sector with Hays shares rising 20% in a day on 10 July. A few days later, Page Group posted flat profits against analyst expectations calling for continued weakness, which was enough to send the shares up by as much as 20% on 13 July.

While France, Germany and the UK remained weak, Page said roughly half its markets have returned to growth with Southern Europe and Asia-Pacific improving.

Robert Walters, which had already seen its share price rise in sympathy with other recruitment firms, saw profit taking after reporting that trading was in line with expectations.

A reminder of the fragility of the hiring market was evident after SThree revealed a 75% slump in pre-tax profit on 21 July, although the board was ‘cautiously optimistic’ in achieving its full year profit target.

Low expectations

Continued profit downgrades have driven down expectations to the point where the slightest piece of ‘less bad’ news can have a positive effect on share prices.

In addition, recruitment firms have been targeted by hedge funds looking to make money by selling shares ‘short’ in the expectation they can buy them back at a lower price and pocket the difference.

This can boost share price increases as hedge funds ‘cover’ short positions. Page Group has a short interest equivalent to around 4% of its shares outstanding, according to Research Tree.

Projected earnings recovery

While strong recent gains could reflect beaten-down expectations and short covering, there is scope for genuine earnings recovery, due to self-help actions.

Recruitment firms have been slimming down and making cost savings which provides a structural margin support for earnings. Analysts have pencilled in a strong recovery for the 2027 financial year for FTSE 250 companies Page Group and Hays.

The projected recoveries come from low bases, with Page’s earnings expected to sink to 4.74p per share in 2026, roughly 90% below 2022.

It’s a similar story for Hays, which has a June year end, where earnings are projected to rebound to 1.84p per share from 1.07p in 2026.

Early evidence for more durable recoveries can be found in the KPMG June jobs survey, which showed temp billings growing at the fastest pace since April 2023 and permanent placements moving close to stabilisation.

The idea of temporary billings inflecting ahead of permanent hiring is a textbook leading indicator recruiter firms and economists watch for in cyclical recoveries.

Green shoots for UK Housebuilders?

Despite facing the perfect storm of rising interest rates and input cost inflation, UK housebuilders have also shown signs of life, with shares in Vistry and Galliford Try up around 12% over the last month.

In response to tougher market conditions, housebuilders have discounted homes to shift excess inventory and rationalise operations to reduce costs.

Embattled Vistry has executed a structural overhaul by halving the number of divisions and suspending the dividend to preserve capital and build net cash.

June’s RICS (Royal Institution of Chartered Surveyors) survey showed some evidence of market stabilisation with 12-month sales expectations moving into positive territory.

RICS economist Tarrant Parsons said the “market may be passed its worst,” before cautioning that any improvement remains fragile.

All eyes will now be on the Bank of England’s interest rate decision on 30 July for signs that the interest rate headwind exacerbated by the Iran war is abating.