UK hiring outlook: Frozen labour market signals challenges ahead
The UK labour market is facing a chilling reality. Despite a minor recession in 2023, unemployment has remained surprisingly low at around 4%. This stability might seem reassuring, but a closer look reveals cracks beneath the surface. Hiring has plummeted, job transitions have slowed, and new pressures from government policy are adding strain.
Hiring activity, as measured by total hires throughout Q3, has fallen below pre-pandemic levels. This is a sharp reversal from the hiring boom seen in 2021 and 2022. One driver is the significant drop in job-to-job transitions – a key source of labour market churn, accounting for over 40% of hires. These transitions have now plunged to fewer than 600,000 workers, a level that underscores just how weak the labour market has become.
The Autumn Budget introduced by Labour has added to employers’ anxieties. Key policy changes, including a steep increase in the minimum wage and higher employers’ national insurance contributions, will significantly inflate costs starting April 2025. Low-margin sectors like retail and hospitality are expected to feel the hardest pinch. Unsurprisingly, major employers have already warned that these measures could further dampen recruitment.
A leading indicator of hiring momentum is demand for human resources roles, as companies tend to ramp up HR hiring when recruitment plans pick up. As this chart shows, online job postings for HR positions have sharply declined after peaking in 2022.
The UK faces a tough road ahead as rising labour costs and subdued economic growth weigh on hiring activity. Addressing the challenges of a stagnating labour market will be essential to reviving momentum and restoring confidence. Without timely intervention, the current freeze in hiring could harden further, leaving both employers and job seekers out in the cold in 2025.