Hiring freeze looms as rising costs and weak demand stall UK job market

Employers across the UK are slowing hiring as they grapple with higher labour costs and the threat of more tax increases later this year. A new report from KPMG and the Recruitment & Employment Confederation (REC) shows recruitment activity in July stayed close to its lowest point in two years.

The permanent placements index crawled up to 40 from June’s 39.1, far from the 50 level that separates growth and contraction. Kate Shoesmith, REC’s deputy chief executive, said many employers, especially in low-wage sectors, were pausing recruitment because of cost pressures and uncertainty around employment law. She called for coordinated action between the government and the Bank of England (BoE) to help the job market recover.

This is a slight diminishing of momentum, especially in the private sector. While a strong rebound in recruitment occurred late last year, there has been little movement since, and employers’ hiring intentions are hovering around COVID-19 pandemic lows. At the sharp end are the hospitality, retail, and social care sectors, where employers typically face low wage bills and temporarily employ workers coming to Britain in their hundreds of thousands

Rising employment costs are a major factor. The April increase in employers’ national insurance contributions has hit labour-intensive businesses the hardest, adding to tight margins. For small businesses, these additional costs have left little room to take on new staff, forcing some to freeze recruitment or consider redundancies.

Much of the pressure to conform is also driven by policy changes. Tax hikes have already squeezed labour budgets this year, according to a separate report by accountancy and business advisory firm BDO, which found that increases in the national minimum wage had been accompanied by real-time information confirming that millions of employees were now in work. Scores of other employers are now preparing for a fresh squeeze on their finances ahead of the government’s Autumn Statement, where extra fiscal measures are anticipated.

The picture thus far: rising costs, weaker demand, and continued uncertainty have made for a tough environment for hiring managers. And economists warn that without targeted support or incentives, many businesses will postpone hiring plans well into 2025, which could drag down the broader economic recovery.

Economists question jobs data as UK labour market sends mixed signals

While surveys point to a cooling jobs market, the official data tells a mixed story. Payroll figures from HMRC show the number of employees has fallen slightly over the past year, though revisions have softened the decline.

Meanwhile, the ONS data indicate that employment and unemployment are both on the rise, while economic inactivity is on a downward trend. Prime Minister Sir Keir Starmer recently used the latest statistics to show that the economy is bringing more people back to work under the government’s “back to work” scheme.

However, several economists suggest that the ONS could be getting their counting wrong, and there was no sign of a substantial lift-off in employment.

Last week, Bank of England governor Andrew Bailey indicated that the demand for labour declined, but suggested it is an impossibly uncertain time given the terrible data.

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