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Could this discounted UK stock soar with inflation tipped to hit 18%?

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Inflation is having a devastating impact on many people in the UK. And if we’re struggling here, just spare a thought for how difficult it is elsewhere in the world.

This morning, I saw a forecast from Citi analysts that suggested inflation would hit 18% in the UK. That’s pretty shocking and some way above the Bank of England’s projections. This will likely have a profound impact on disposal income in the UK and will only exacerbate the cost-of-living crisis.

But one sector that could benefit from inflation is recruitment. Let’s take a closer look at why and my top stock in this sector.

Impact of inflation on recruitment

There are a number of ways to assess the impact of inflation of employment and recruitment. Firstly, inflation pushes up the cost of goods and puts pressure on both the employed and unemployed to enhance their income.

Employed people may seek a wage increase or even strike like we’re seeing at Felixstowe docks. Others may look for a new job.

But the unemployed are likely to feel the pain too, probably even more so. Not everyone can generate passive income and some may be living off unemployment benefits or, if they’re older, their pension.

In act, the Daily Mail, recently reported that a record number of pensioners had joined the workforce in the three months to June 30. If people are feeling the pinch now, just imagine how it will feel come autumn.

And finally, as economically inactive people may also be tempted back into work by wage inflation. With salaries being pushed upwards, working may look more attractive than it had done so before.

Can Hays benefit?

Hays (LSE:HAS) is one of the UK’s largest recruitment groups. In July, the business highlighted a record end to the year. In the three months to 30 June, the white collar specialist said fees had risen 23% during the fourth quarter on a like-for-like basis, or by 24% in total.

Group operating profit is now expected to come in around £210m, at the top end of guidance. In fact, if it wasn’t for the impact of exiting the Russian market, the company’s earnings would be coming in way above initial guidance.

So can Hays prosper as inflation rises further? I definitely think there is a good chance it could for all the reasons mentioned above. I don’t think the case for getting into work, getting a better paying job, or a raise, has ever been stronger.

One issue is the economy’s eventual slowdown. The UK is predicted to go into recession and shedding jobs is a characteristic of that. Ironically, a tight labour market is driving up inflation which will likely push us into recession (I actually wrote about this in an editorial last year).

But the recession isn’t forecast to be particularly deep, so I’m not expecting unemployment figures to rise considerably. Instead, I believe Hays should benefit from the current situation.

It also earns money overseas, which could provide additional benefit as the pound gets weaker.

I already own Hays shares, but I would buy more at the current price. I really do see Hays prospering as more people get back into the jobs market.

The post Could this discounted UK stock soar with inflation tipped to hit 18%? appeared first on The Motley Fool UK.

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James Fox owns shares in Hays. Citigroup is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.