UK businesses are pulling back on hiring due to rising costs and increasing economic uncertainty.
With reports indicating a softening labour market, many employers are adopting a cautious approach, cutting jobs and freezing recruitment ahead of cost increases set to take effect in April.
Hiring Declines as Economic Pressures Mount
The latest survey from KPMG and the Recruitment and Employment Confederation (REC) signals a continued slowdown in hiring.
While the decline in permanent and temporary placements was less severe than in January, it remains a key concern for the labour market. At the same time, the employment index from business consultancy BDO dropped to 94.30 in February, nearing levels last seen after the 2008 financial crisis.
“At the moment, though, things are still slow as companies hold their breath in the face of significant cost rises from April with changes to national insurance and the national living wage,” said Neil Carberry, REC’s chief executive.
Adding to the uncertainty, overall job vacancies shrank further in February, reflecting a weaker demand for workers. As more people enter the job market, wage pressures have also eased, with starting salaries rising at their slowest rate in four years.
April Tax and Wage Increases Squeeze Employers
UK businesses are bracing for the financial impact of a £25 billion increase in employer National Insurance contributions (NICs) and a 6.7% rise in the minimum wage.
The increase is effective in April, the main rate of employer NICs will increase from 13.8% to 15%, while the earnings threshold for contributions will fall from £9,100 to £5,000. This has prompted many small business owners to prepare for job cuts, with over 300,000 businesses planning layoffs, according to Iwoca research.
“Many companies continue to have a ‘wait and see’ approach to hiring,” said Jon Holt, KPMG’s UK chief executive, although he noted that expected interest rate cuts could ease some of the pressure.
Declining Business Confidence Deepens the Crisis
The latest BDO business trends report shows a dip in business sentiment, with optimism falling for a fifth straight month. UK business output contracted for the second month in February, signalling a slowdown in economic activity.
“Business growth is happening, but it is in a fragile state,” said Kaley Crossthwaite, a partner at BDO.
Hiring trends mirror this growing caution, with a KPMG and REC report showing job vacancies falling at their second-fastest rate in almost five years and wage growth hitting a four-year low.
Political and Economic Implications
The hiring slowdown and rising unemployment are placing pressure on Chancellor Rachel Reeves ahead of her March 26 Spring Statement. Business leaders, including the REC’s Carberry, have urged her to take action to restore economic confidence.
Carberry previously warned that the tax hikes announced in the autumn budget would lead to job losses or price increases, and business leaders have echoed these concerns.
Meanwhile, the Treasury has pointed to signs of rising business confidence. “Lloyds Banking Group reported last month that business confidence is at a six-month high,” a government spokesperson said. However, opposition figures have criticised Reeves, particularly over her expected welfare spending cuts, which they argue will disproportionately impact the sick and disabled.
Reeves has defended her approach, arguing that her policies aim to support people back into work.
However, she has not ruled out tightening eligibility for Personal Independence Payments, a move that has drawn backlash from critics.
A Critical Moment for the UK Economy
Rising labour costs and declining business confidence are leaving UK employers with difficult choices in the months ahead.
The weakening job market only adds to the strain, and unless economic conditions improve, further job losses and recruitment freezes may occur.
Business leaders are keen to see whether the government will take action to help alleviate the mounting pressures on businesses and workers with the Spring Budget approaching.