Hiring intentions in the private sector have fallen to their lowest level since the pandemic, as UK employers scale back recruitment plans in response to rising employment costs and economic uncertainty.
Just 57% of private sector organisations say they intend to take on new staff in the next three months, according to the latest Labour Market Outlook from the Chartered Institute of Personnel and Development (CIPD), the professional body for HR and people development. The figure is down from 65% in autumn 2024 and marks a record low outside of lockdown-era disruptions.
Sectors such as hospitality and social care — both key employers of young people — are among the hardest hit. Despite under-21s being exempt from employer National Insurance contributions (NICs), nearly four in 10 employers who hire young people say NICs changes have still pushed up their costs “to a large extent”.
Employers warn of rising risks to youth employment
The CIPD is calling on the government to renew its support for young people in the workforce and to ensure that changes proposed in the Employment Rights Bill don’t further discourage employers from offering early-career roles.
The report found that 84% of employers across all sectors have experienced higher employment costs since NICs changes came into effect in April. For almost one in three, these increases have been significant. In hospitality and care, the figure rises to 50%.
When asked which cost had the biggest financial impact over the past year, 36% of employers cited NICs, well ahead of energy bills (15%) and minimum wage increases (12%).
James Cockett, senior labour market economist at the CIPD, said that rising costs are clearly shaking business confidence, especially in frontline sectors and those that provide entry-level roles.
“Business confidence is faltering further under rising employment costs, and it’s sectors like hospitality and those offering vital opportunities to young people that are being hit hardest,” he said.
He added that some of the government’s planned reforms, including a new statutory probation period and simplified dismissal processes, could unintentionally add further complexity and risk for employers. “If new employment laws increase the risk and complexity of recruiting and managing new staff, employers are less likely to take a chance on young workers with limited experience and more development needs.”
Confidence dips across public and private sectors
The CIPD’s net employment balance — a measure of the difference between employers expecting to increase and decrease staff levels — now sits at just +9 in the private sector, close to last quarter’s record low of +8.
In the public sector, confidence is also falling. The net employment balance has turned negative at –6, with public administration scoring –12 and compulsory education, including schools, at –8. Recruitment pressures remain acute in care and healthcare, where vacancies are difficult to fill and recent immigration rule changes are expected to further reduce candidate supply. In this group, the employment balance has plunged from +23 last quarter to –2.
Across all sectors, 31% of employers report having hard-to-fill vacancies.
Pay expectations steady but pressure on workforce grows
Employers are still budgeting for pay increases despite a more cautious hiring environment. The median basic pay rise expected over the next 12 months is 3%, unchanged for the fifth quarter in a row.
But CIPD analysts warn that fewer new hires could lead to pressure on existing staff, especially in organisations where long-term vacancies remain unfilled. Employers are being urged to monitor workloads, invest in training and development, and safeguard employee wellbeing.
Cockett said it was essential that businesses did not scale back on apprenticeships and training despite the squeeze.
“It’s crucial that employers aren’t forced to scale back on their recruitment and investment in apprenticeships and other forms of training for young people as their costs rise,” he said. “Providing employment opportunities and developing the skills of young people is key to building sustainable talent pipelines and meeting future skills needs that support long-term business growth.
“We simply cannot afford for businesses to lose confidence in employing people if the government’s Get Britain Working agenda is to be successful and the economy is to grow.”
He added that where growth is not expected, HR teams must focus on retention, reskilling and maintaining morale. “Where many employers aren’t expecting to grow their workforces in the coming months, they should monitor workloads and support staff with their wellbeing, particularly where vacancies remain unfilled. Investment in reskilling and upskilling opportunities will be crucial to keeping employees engaged and meeting business objectives.”
External warning signs reinforce outlook
The CIPD’s findings align with wider data showing declining confidence across the economy. According to the UK services sector PMI, business activity slowed sharply in July, with new orders falling at the fastest rate since 2022. Employment across the sector also declined, reflecting caution around payroll and cost control.
In response, business leaders and economists are urging government ministers to reconsider whether further employment-related policy changes — such as tightening immigration and reforming dismissal rights — risk deepening the slowdown.
The CIPD says that without targeted support, especially for young workers and cost-burdened sectors, the UK’s labour market may stall just as it is needed most to drive growth.
