A new report by the Chartered Institute of Personnel and Development warns that UK employers are at a crossroads moment.
The report warns that many employers feel they will have to make staff redundant unless the economy improves in the next 12 months.
Overall, unemployment has been falling in the past six months, a trend that is at odds with the official data recording the wider performance of the economy. GDP figures show that the economy has contracted in each of the past three quarters but the CIPD survey provides an insight into why job losses have not been so high during a double-dip recession.
The latest unemployment figures for July are released on Wednesday 15th August.
Employers have been holding on to staff during the downturn so that they are ready to turn around work when new orders come in and so that they won’t have the firing and training costs that are required when their businesses see an increase in demand for services.
Gerwyn Davies of the CIPD said: "Recent falls in unemployment suggest that the labour market is on a sound footing, but a closer examination reveals that many employers are holding on to more staff than is required by the current level of demand in order to retain their skills.
However, the report warns that the next 12 months are “make or break” for many firms. The policy of retaining skilled staff when demand is low cannot continue forever warn the CIPD, so an upturn in the economy is vital to avoid more redundancies.
The CIPD surveyed more than 1,000 employers and more than a third of the firms admitted that they had kept on more staff than they needed so that they could maintain a wide range of skills within their business.
Nearly two-thirds of firms said that they would have to reduce staff numbers if economic growth did not improve in the next 12 months.
Mr Davies added: "This is a make or break moment for employers – unless growth picks up many will find that they cannot hold on to some workers any longer.
"The spare capacity implied by the research suggests that firms are ready to increase their output quickly if demand grows, but there is only so long they can hold out for growth.
"The labour market is approaching a game-changing phase – one that could shape Britain's capacity to compete for a generation."
Twitter: My Finances
Join the conversation at #news_myfinances