UK businesses are exercising caution in recruitment as rising costs and economic uncertainty weigh on hiring decisions, according to a joint report by KPMG and the Recruitment & Employment Confederation (REC). The latest survey reveals that hiring activity has decelerated, with firms hesitant to expand their workforce amid significant financial pressures.
A combination of factors, including wage growth, inflation, and market uncertainty, is driving this slowdown. While the UK job market remains resilient, businesses are becoming more selective, focusing on cost efficiency rather than aggressive expansion. This trend could have significant implications for employment levels and economic growth in the coming months.
Rising Costs Put Pressure on Hiring
The primary factor affecting hiring decisions is the rising cost burden on businesses. Companies are struggling with increased wages, energy prices, and supply chain expenses. According to REC Chief Executive Neil Carberry, "Employers are finding it difficult to justify new hires when faced with such significant cost increases."
This hesitation has been reflected in a decrease in job postings, with employers prioritising existing staff retention over expansion. As businesses navigate economic uncertainty, flexibility and strategic hiring have become key considerations.
Economic Uncertainty Slows Employment Growth
The UK economy has faced a series of challenges, from post-pandemic recovery to geopolitical tensions affecting supply chains. These factors have led to volatility in financial markets, making businesses more risk-averse.
KPMG's report suggests that economic unpredictability is a major deterrent for recruitment. "Uncertainty in demand and fluctuating costs mean that businesses are delaying hiring decisions until stability returns," said Jon Holt, CEO of KPMG UK.
Wage Inflation Remains a Key Concern
The rise in wages is another critical issue. With inflationary pressures persisting, workers have sought higher salaries to keep pace with the cost of living. According to the Office for National Statistics (ONS), average UK wages rose by 5.8% in the past year, increasing the financial strain on employers.
Businesses, particularly small and medium-sized enterprises (SMEs), are finding it difficult to accommodate these pay rises while maintaining profitability. This is leading to a preference for temporary or contract workers instead of permanent hires.
Sector-Specific Impact
Some industries have been hit harder than others. The technology and financial services sectors continue to show moderate hiring growth due to skills shortages, but sectors such as retail, hospitality, and manufacturing have seen notable declines.
For example, the construction sector has experienced a significant drop in new job vacancies due to rising material costs and delayed infrastructure projects. Similarly, the retail industry is hiring at a slower pace as consumer spending weakens.
Recruiters Report Decline in Job Placements
The latest REC data highlights a decrease in permanent job placements, with many businesses favouring temporary contracts. "The demand for temporary staff remains strong as companies look for short-term flexibility in uncertain times," said Carberry.
Despite this, the labour market remains tight, with many firms struggling to find skilled workers. A lack of specialised talent in high-demand sectors is exacerbating the hiring slowdown, forcing businesses to reconsider recruitment strategies.
Fun Facts
Did you know that the UK workforce has undergone a significant shift in job preferences post-pandemic? Remote job postings now account for over 30% of new listings, reflecting a major transformation in work culture.
Flexible work arrangements have become a key factor in attracting and retaining talent, particularly among younger workers.
Conclusion
The latest data from KPMG and REC highlights a slowdown in hiring due to cost concerns and economic uncertainty. Rising wages, inflation, and sector-specific challenges are leading businesses to adopt cautious hiring strategies, favouring temporary roles over permanent positions. While some industries continue to see growth, the overall trend suggests a more selective and strategic approach to recruitment in 2025.
As firms navigate these economic hurdles, experts anticipate that hiring activity may stabilise once inflationary pressures ease and market conditions improve.
Frequently Asked Questions
Why is UK hiring slowing down?
UK businesses are reducing hiring due to economic uncertainty, rising wage costs, and financial pressures from inflation and supply chain disruptions.
Which sectors are most affected by the hiring slowdown?
Retail, hospitality, and manufacturing have seen the biggest declines, while technology and financial services continue to experience moderate job growth.
Are businesses still hiring, despite the slowdown?
Yes, but many are opting for temporary or contract workers instead of permanent hires to maintain workforce flexibility in uncertain times.
How does wage inflation impact hiring?
Rising wages increase business costs, making it harder for employers to justify new hires. This results in fewer job postings and more selective recruitment processes.
Will UK hiring pick up again in 2025?
Experts believe hiring may stabilise as inflationary pressures ease and economic conditions become more predictable later in the year.
