The 2025 UK Budget, combined with shifting labour market conditions, is creating a cautious environment for hiring. Rising employment costs, softer demand, and sector-specific pressures are affecting employers and recruitment agencies alike.
Private Sector Hiring Intentions Drop
According to the Chartered Institute of Personnel and Development (CIPD), private sector hiring intentions are at a record low outside the pandemic. Only 57% of employers plan to recruit in the next three months, down from 65% a year ago. This trend is particularly evident in sectors with high reliance on lower-paid staff, such as hospitality and care.
Budget Measures Driving Employment Costs
The 2025 Budget introduced several measures affecting recruitment:
- Employer National Insurance Contribution (NIC) rates increased, with the secondary threshold lowered, raising overall employment costs.
- National minimum and living wages have risen, increasing wage floors.
- Employment Allowance relief has expanded for some small businesses, though larger employers still face significant costs.
- Recruitment agencies managing temporary or contract workers face tighter margins due to client cost sensitivity.
Sector-Specific Impacts
Hospitality, Care, and Entry-Level Roles
Employers in these sectors report significant pressure from rising costs, leading to slowed recruitment or freezes. Entry-level roles are particularly affected.
Contractors and Temporary Labour
Recruitment agencies managing temporary workers or umbrella-company staff are under pressure to increase assignment rates while maintaining candidate take-home pay, squeezing margins.
Small Businesses and SMEs
Some small businesses benefit from the Employment Allowance, but the relief applies only to a subset of firms and does not fully offset the rise in NICs and wage floors.
Public Sector and Specialist Roles
Roles supported by government investment, such as infrastructure, housing, and planning, remain relatively resilient despite broader market weakness.
Labour Market Overview
Recent data from the Office for National Statistics (ONS) paints a cautious picture:
- Unemployment rate: 5.0% (three months to September 2025), up from 4.6% a year ago.
- Total job vacancies: ~717,000, continuing a downward trend over 39 consecutive quarters.
- Unemployed per vacancy ratio: 2.5, up from 1.8 a year ago, indicating rising competition for jobs.
- Average regular earnings growth: 4.6%, total earnings including bonuses: 4.8%.
Industry Reaction
The CIPD cautions that while employment costs have risen, the Budget does not provide a clear plan to boost productivity or investment. Recruitment agencies report margin pressures, particularly in low-paid and temporary roles. Optimism remains in specialist or public-sector roles, but overall confidence is low.
Outlook and Risks
The near-term outlook suggests that employers may continue to freeze or delay hiring, leaning on automation and cost management strategies. Recruitment pressures are uneven across sectors, with some areas facing severe constraints while specialist or government-supported roles see steadier demand. Real wage growth and macroeconomic uncertainty will continue to influence hiring and retention decisions.
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