UK employers hesitate to hire and hold back wages as cost pressures reshape the road ahead

11 August 2025

A drone view of London's Canary Wharf financial district in London, Britain, March 3, 2024. REUTERS/Yann Tessier/File Photo

In the waning days of July 2025, a quiet tension gripped the UK's business community, echoing through boardrooms and kitchen tables alike. Private sector firms surveyed by the Chartered Institute of Personnel and Development and the Recruitment and Employment Confederation revealed a reticence to hire that hasn't been seen since the immediacy of the COVID‑19 crisis. A mere 57 percent of employers signaled plans to recruit in the upcoming three months, marking the lowest confidence since early 2021.

That caution extends to the wage front, where starting salary increases cooled to the slowest pace in more than four years. Analysts say these trends reflect broader headwinds from rising employer contributions to social security to mandated increments in the minimum wage and looming employment law reforms that could make dismissals within the first two years more complex.

Many companies, especially in hospitality, care, and other high-turnover sectors, are adjusting hiring strategies not with optimism, but with hedging against rising costs and uncertain returns. Asking wages remain static at a median expected increase of 3 percent, and that pause in growth underscores the growing need for balance between financial discipline and workforce retention.

However, that is not the only backdrop to job market caution. According to KPMG and REC indicators, permanent placements and temporary job pay have both slumped, and recruiters see payroll costs as a chief deterrent. Employers are bracing against weak domestic demand and lingering concerns about U.S. trade tariffs, while staff shortages and automation anxieties weave an uneasy undercurrent.

The Bank of England watches closely, as labor and wage signals shape its next move on interest rates. Inflation unwavering above target tempers its enthusiasm for rate cuts, even as policymakers weigh the distress of a cooling labor market. Projections suggest the unemployment rate may hover near 4.7 percent a four-year high as economists wait for clearer signs of softening wage pressures.

At the heart of the matter are government policy decisions driving business caution. An increase in national insurance contributions, strong minimum wage growth, and legislation tightening hiring flexibility have collectively raised the costs associated with employment. These combined forces are especially impactful on young or less-experienced workers, for whom entry into the job market is now increasingly fraught with friction.

The wider business landscape mirrors this uncertainty. July’s composite business activity index dipped, revealing slowing output in services and cautious manufacturing hires, even as contracting sectors saw minor improvement. Employers cited increasing national insurance expenses alongside faltering orders as key drivers of retrenchment in staffing and hiring plans.

Yet amid the collective unease, whispers of adaptability emerge. Firms cautiously repair supply chains, search for AI efficiencies, and evaluate leaner operational models. Hiring may slow, but productivity and digital pivots are inching deeper into strategic planning.

While the recruitment freeze and wage restraint reflect immediate concerns, they also illuminate broader themes. Businesses appear to be recalibrating expectations in an inflationary era, recognizing that long-term resilience may come not from aggressive hiring, but from adaptability and strategic resilience. The UK’s businesses may be tightening belts now, but they may be positioning themselves to thrive in a transformed economic rhythm.

This is not a story of hiring collapse or wage despair. It is a reality check on cost, caution, and corporate conscience. Employers are negotiating complexity, policymakers are poised to respond, and the job market is drawing a fresh map of risk and potential.