British employers are pulling back on recruitment amid mounting costs, economic uncertainty and the growing impact of automation, according to leading labour market observers reacting to the latest official statistics.
Michael Stull, managing director at workplace solutoins firm ManpowerGroup UK, said businesses were struggling to expand their workforce and warned that entry-level jobs were being squeezed out by artificial intelligence.
“British employers are struggling to grow the workforce because of rising costs and uncertainty around both the economy and government commitments which is leading to fewer workers in the UK labour market. It’s little wonder many are looking to AI and automation to drive up efficiencies and to drive down expenditure,” he said.
“This unfortunately means this year will be tougher for new graduates, school and college leavers, as entry-level roles see the greatest decline because of automation and AI adoption, especially in many white-collar industries.”
Kate Shoesmith, deputy chief executive of the Recruitment and Employment Confederation (REC), called for pragmatism from policymakers ahead of the Autumn Budget.
“The labour market remains challenging, with many businesses maintaining a cautious approach to hiring. But if we are to harness the optimism businesses tell us they have for future recruitment later this year, we will need the Autumn Budget to offer employers a bit more bandwidth on costs,” she said.
She added that the employment rate had ticked up slightly and economic inactivity had dropped, and warned of a mixed picture. “Construction and blue-collar industries are showing a gentle return to hiring, which is often a strong indicator for the wider economy, alongside sustained demand for engineering skills. But hospitality and retail saw a slow start to the summer amid cost headwinds.”
Jack Kennedy, senior economist at jobsite Indeed, said the figures showed a labour market in a slow decline. “The payrolled employment figures indicate a jobs market that’s struggling but not collapsing,” he said. “Payrolls have declined for six months running, but July’s initial estimate points to a smaller-than-expected 8,000 fall.”
He described the current environment as a “stagflation quandary” for the Bank of England’s Monetary Policy Committee, which must weigh labour market weakness against still-high wage growth. “While a further rate cut in November remains on the cards, it’s not a done deal with wage growth remaining elevated amid concerns over inflation persistence,” he added.
Vacancies fall for 37th month as wage growth cools
Office for National Statistics (ONS) figures released on Tuesday showed another sharp drop in vacancies, down 44,000 on the quarter to 718,000. This is the 37th consecutive monthly fall and takes the total well below pre-pandemic levels.
Meanwhile, wage growth including bonuses cooled from 5% to 4.6% in the three months to June. Regular pay (excluding bonuses) rose by 5.5%, slower than in recent months, while inflation over the same period stood at 2.3%.
The unemployment rate held steady at 4.7%, with the number of unemployed people at 1.62 million. The ONS said some firms may be choosing not to replace staff who leave, reflecting broader caution across the economy.
Private sector job intentions hit record low
Separate research released this week shows that only 57% of private sector employers plan to recruit in the next three months, down from 65% last autumn. This is partly due to April’s £25 billion increase in employer national insurance contributions, as well as a rise in the national minimum wage.
The Chartered Institute of Personnel and Development has warned that young jobseekers are the hardest hit by the fall in recruitment.
The latest labour market update from KPMG and the REC found that both permanent and temporary hiring fell sharply in July, with the steepest reduction in vacancies since April. An increase in the number of people seeking work, including new graduates and those returning to the workforce, has added to candidate availability.
Policy support seen as essential
Both Shoesmith and Stull called for the government to help ease the pressure on employers. “Now is the time for pragmatism from the Low Pay Commission before they make any further decisions on pay rates,” Shoesmith said.
Stull warned that further uncertainty could undermine already fragile labour market stability. “With more than a quarter of a million jobs now lost since last autumn’s Budget, pressure is mounting for the Chancellor to balance the books and support growth,” he said.
“However, stability in the employment market will depend not only on plugging skills gaps and the growth-centric productivity gains businesses desperately need; it will also rely on how readily policy keeps pace with economic and technological change.”
Bank of England not expected to move fast
While the Bank of England cut interest rates last week to 4%, further loosening is not expected soon. The cooling pace of wage growth and falling vacancies support the case for continued caution, but inflationary pressures remain.
Kennedy noted that persistent uncertainty about ONS data quality has made policymaking more difficult.
“The MPC continues to operate in a heavy fog of uncertainty,” he said.
William Furney is a Managing Editor at Black and White Trading Ltd based in Kingston upon Hull, UK. He is a prolific author and contributor at Workplace Wellbeing Professional, with over 127 published posts covering HR, employee engagement, and workplace wellbeing topics. His writing focuses on contemporary employment issues including pension schemes, employee health, financial struggles affecting workers, and broader workplace trends.
- William Furney
- William Furney
- William Furney
- William Furney
