Staffing costs ease but recruitment difficulties persist, ONS data shows

UK businesses report that the pressure of rising staffing costs has begun to ease, but many are still struggling to recruit workers, according to new figures from the Office for National Statistics (ONS).

In late August, almost half of companies with 10 or more employees said their staffing costs had increased over the previous three months. While this remains significant, it is 29 percentage points lower than the figure recorded in late May, suggesting cost growth has slowed.

The ONS Business Insights and Conditions Survey, released on Thursday, found that recruitment challenges remain entrenched, with around a third of employers reporting difficulties in filling vacancies. A lack of qualified applicants and low application numbers were cited as the most common obstacles.

Staffing costs rising more slowly

The latest data shows that 48 percent of larger businesses experienced higher staffing costs between June and August, a marked drop compared to earlier in the year. Costs include wages, bonuses, national insurance contributions and pensions.

The proportion is still higher than the same period in 2024, when 36 percent reported increases. Analysts say it indicates that costs are continuing to rise but at a more moderate pace than during recent inflationary peaks.

Looking ahead, 31 percent of businesses said they expected staffing costs to increase over the next three months, down from 41 percent in May but slightly higher than a year ago.

Wages follow seasonal pattern

Wage growth slowed sharply in July, reflecting the seasonal cycle seen in previous years. Seventeen percent of firms said their employees’ hourly pay had risen compared with June. This represents a fall of 38 percentage points from April, when pay increases typically peak due to annual reviews and adjustments linked to the National Living Wage.

The ONS noted that this seasonal pattern has been consistent since the measure was introduced in 2022, with April pay rises followed by declines in subsequent months.

Recruitment difficulties persist

Thirty-one percent of employers with 10 or more staff reported difficulties in recruitment during July, broadly unchanged since April.

Of those companies, just over half (51 percent) said a lack of qualified applicants was their main problem, while nearly a third (32 percent) pointed to low application numbers.

The figures suggest that despite easing pay pressures, the tight labour market continues to challenge employers, particularly in sectors with persistent skill shortages.

HR professionals say the data underlines the importance of workforce planning and investment in training, as well as strategies to widen the pool of applicants.

Expert view

Commenting on the findings, Kevin Fitzgerald, UK managing director at HR platform Employment Hero, told HRreview that staffing cost pressures were the main issue for many firms.

“The new ONS figures show staffing cost pressures are easing, but they have not disappeared. In late August, 48% of businesses with 10 or more employees saw higher staffing costs over the past three months. That’s lower than late May, but still higher than late August 2024. Our data shows that the combination of slower hiring, but higher pay is putting real pressure on businesses,” he said.

He added that the challenges facing employers were clear in the recruitment data. “ONS’ data shows that hiring is tough. In July, 31% of larger businesses struggled to recruit, mainly due to a lack of qualified applicants (51%) or too few applications (32%). There are some signs of life and slow recovery – our data showed employment being up 2.2% MoM in July and 4.9% versus the previous three months.”

Fitzgerald also pointed to shifting work patterns and global trade pressures. “Working patterns have settled too. Around 19% of private sector firms are sticking with or expanding permanent homeworking, roughly unchanged from late 2024. Exporters are already feeling US tariffs – 33% were hit last month, 31% expect the same next month and 13% expect to pass these costs on to customers. The priority now is clear: boost productivity, keep hold of talent and plan smarter to avoid stop-start hiring.”

Homeworking now a permanent feature

The survey also found that almost one in five private sector employers are embedding increased homeworking into their business models on a permanent basis.

Nineteen percent said they were already using or planning to use remote working arrangements beyond the short term. The figure has remained broadly stable since November 2024, indicating that hybrid work patterns have become a settled feature of the post-pandemic workplace.

Observers say that for HR departments, the figures show the need to balance flexibility with productivity, as well as ensuring that culture, engagement and training keep pace with new ways of working.

Wider business pressures

Beyond workforce costs and recruitment, the ONS survey captured the impact of international trade tensions. Among exporters, one in three reported being affected by US tariffs in August, with a similar number expecting continued disruption in September.

The most common expected outcome was passing higher costs on to customers, cited by 13 percent of affected businesses. While tariffs are primarily an economic issue, they can have indirect effects on HR, from pressure on pay negotiations to uncertainty around staffing levels.

Slower growth in wages and benefits may ease budget constraints, but the ongoing struggle to recruit and retain talent shows that challenges remain firmly in place.

Hybrid work is no longer a temporary experiment but a permanent fixture in many organisations, demanding new approaches to leadership and employee engagement. At the same time, wider economic headwinds, from trade disputes to modest growth forecasts, mean businesses must remain cautious in their workforce planning.

While the short-term outlook for pay pressures is improving, the long-term challenge of securing and developing the right talent continues to shape the agenda for HR leaders across the UK.