The number of UK employers expecting to increase headcount in the next three months has fallen to “a record low”, outside of the pandemic, as many contend with rising costs and global uncertainties, according to a new report.
The latest Labour Market Outlook report from the professional body for HR, the Chartered Institute of Personnel and Development (CIPD), shows that the rate of employers expecting to increase headcount has fallen sharply among large private sector employers, and in retail in particular.
In response, the CIPD is urging the government to closely consult with employers and business bodies to limit the potential impact the Employment Rights Bill could have on employers’ hiring plans as businesses face mounting external pressures.
This latest survey of more than 2,000 employers from the CIPD found that the overall net employment balance (NEB) – the difference between employers expecting an increase in staff levels and those expecting a decrease in the next three months – fell from +13 last quarter to +8 this quarter.
This marks a record low, not including the pandemic era, since the CIPD began collecting this measure in 2014.
The net employment balance has fallen into negative territory in the public sector, from +3 to -4, and has continued to fall in the private sector, from +16 to +11, which is a record low outside of 2020 (the pandemic).
One in four employers (24%) plan redundancies in the next three months. This is consistent with last quarter but higher than the 21% registered in autumn.
The retail and education sectors are facing acute pressure. The NEB for retail has fallen from +23 in autumn 2024 to –19 this quarter. Just one in 10 (11%) retail employers expect there will be an increase in staff levels in the next three months, with three in ten (30%) expecting a fall in staffing levels. The NEB is also in negative territory, -13 among employers in compulsory education which includes primary and secondary education, and -7 among those in non-compulsory education, which includes vocational and higher education institutions.
Overall, 61% of employers plan to recruit in the next three months, down from 64% in the previous quarter and 67% in autumn 2024.
The fall in employers expecting to increase staffing levels in the next three months is driven by large private sector employers. Last quarter, 39% of private sector employers expected there would be an increase in their staffing levels, but this has fallen to 32%.
Other key findings in this quarter’s Labour Market Outlook report include:
- Over a quarter of employers (27%) conducted a redundancy programme in the past 12 months.
- Of those, half (50%) offered affected workers an enhanced redundancy package, going beyond what the law requires; 41% offered the minimum statutory amount and 9% didn’t know what offer was made.
- Smaller employers (fewer than 250 employees) were far more likely to offer statutory redundancy pay (54%) than larger private sector employers (37%).
- Currently, workers with fewer than two years of service don’t have a legal right to any statutory redundancy pay. Just under one in five (17%) employers didn’t pay anything to workers in this category. However, 66% of employers in our sample still gave these employees something to support their financial wellbeing.
James Cockett, senior labour market economist at the CIPD, said: “From April, employers across the UK have begun to feel the full effect of increases to National Insurance Contributions and the National Living Wage outlined in last year’s budget. They’re also looking at the potential impact of the Employment Rights Bill on employment costs and plans, and this comes at a time of global uncertainty. Employer confidence is low, which is being reflected in their hiring plans.
“The Employment Rights Bill is landing in a fundamentally different landscape to the one expected when it formed part of the Labour manifesto in summer of last year. It was always going to be a huge change for employers but they’re operating in an even more complex world now. It’s vital the government works closely with employers to balance the very real risk of reductions in investment in people, training and technology with their desire to reduce poor employment practice. The government can address employer nerves around the bill by prioritising an implementation plan with a clear phased timeline, alongside support and guidance for employers, and smaller businesses in particular.”
George Holmes, managing director of Aurora Capital, said: “The latest CIPD figures are a clear warning sign. Confidence among UK employers is falling fast, and small businesses are feeling the pressure on both sides. They are struggling to retain staff, while also bracing for weaker demand.
“The combination of rising wage bills, higher employer National Insurance Contributions and ongoing economic uncertainty is taking its toll. For many SMEs, hiring has already slowed right down. Any plans for growth are being parked while they focus on staying above water. These figures suggest that even established firms are cutting back, which creates a domino effect through supply chains and local economies.
“For small firms, the danger is being caught in the middle. They are squeezed by rising costs and a cooling market, but without the financial cushion that larger businesses have. Access to affordable finance and clear policy direction will be critical in the months ahead. If the current trend continues, we risk seeing not just a hiring freeze, but a loss of momentum that could take years to rebuild.”
