UK businesses remain cautious about hiring as economic uncertainty and rising labour costs weigh on growth, two new reports suggest.
Job vacancies in the UK continued to decline in February, marking the sixteenth consecutive month of contraction, according to a survey by KPMG and the Recruitment & Employment Confederation (REC). Compiled by S&P Global, the study found that businesses are slowing or pausing recruitment due to economic concerns and increased payroll expenses.
The drop in permanent vacancies was more pronounced than in temporary roles, with permanent staff appointments falling for the twenty-ninth month in a row. However, the latest decline was the softest since October, offering a potential sign of stabilisation.
“While it is still a wait and see approach to hiring, with February data showing companies continue to hold back on recruitment, the softer decline could be an indication that expectations of further interest rate cuts and better-than-expected recent economic data are starting to release some of the pressures on business,” said Jon Holt, Group Chief Executive and UK Senior Partner at KPMG.
The sectors most affected by falling permanent vacancies included secretarial and clerical jobs, executive/professional roles, and retail. Temporary job openings also dropped sharply in executive/professional roles, followed by retail and IT & computing. Blue-collar roles experienced the smallest decline in temporary vacancies.
At the same time, rising redundancies have pushed more people into the job market, with February data showing a significant increase in candidates searching for both permanent and temporary positions. However, employer caution has kept wage growth in check, with starting salaries rising at their slowest rate in four years and dipping below the average level. Pay growth in temporary jobs remained minimal.
The UK’s unemployment rate stood at 4.4% between October and December 2024, according to the Office for National Statistics (ONS). However, job losses are expected to rise further as businesses face higher National Insurance contributions and a 6.7% increase in the minimum wage.
“Enabling companies to grow is at the heart of our prosperity – the Chancellor must use the Spring Statement to build their confidence in growth,” said Neil Carberry, REC Chief Executive.
“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,” he added.
A separate report by advisory firm BDO highlighted further economic concerns, with its business climate index falling to levels last seen after the Global Financial Crisis. Persistently high inflation, weak business sentiment, and sluggish economic activity are expected to keep conditions challenging throughout 2025.
Despite the Bank of England cutting interest rates to 4.5% in February to stimulate growth, experts warn that recovery may take time.
“Business growth is happening, but it is in a fragile state,” said Kaley Crossthwaite, Partner at BDO.
“Cutting interest rates to 4.5% is a step in the right direction, but we know these cuts can take over 18 months to fully impact the economy. Businesses will need continued support in the meantime to address workplace challenges and fully reach their growth potential,” she added.
