UK employers are focusing more on controlling costs than expanding their businesses as rising expenses, economic uncertainty and new employment regulations continue to weigh on confidence, according to new figures.
Many organisations are also holding pay expectations around 3 percent and remaining cautious about recruitment despite a modest improvement in hiring intentions.
Research from the Chartered Institute of Personnel and Development (CIPD), the professional body for HR and people development, found that cost management had become the top priority for employers across almost every sector and business size.
It suggests that businesses remain under pressure from higher wage costs, energy prices and wider global instability as the government pushes ahead with major workplace reforms.
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Employer confidence remains weak
The CIPD’s latest Labour Market Outlook survey found 58 percent of employers ranked cost management as their main organisational priority.
Improving productivity ranked second at 44 percent, while growing market share was third at 35 percent, suggesting many firms remain focused on protecting margins rather than expanding operations.
The survey, of more than 2,000 employers, was carried out between late March and late April after the outbreak of conflict in the Middle East. Employer confidence remained close to record lows despite a slight improvement in recruitment intentions.
The net employment balance, which measures the difference between employers expecting staffing increases and those expecting reductions, stood at +10. Hiring confidence was strongest in professional services, including legal and accounting, at +25. It was also positive in information technology at +20 and manufacturing at +19.
Public sector confidence remained significantly weaker, with compulsory education at -10, public administration and other public sector organisations at -9 and non-compulsory education at -5. More than one in five employers said they expected to make redundancies within the next three months, rising to 26 percent among public sector organisations.
But recruitment intentions edged upwards overall, with 63 percent of employers planning to hire staff over the next quarter compared with 60 percent previously. In the public sector, the proportion planning to recruit rose from 70 percent to 77 percent.
Employment law changes add pressure
The report also suggested smaller businesses may struggle to cope with the compliance burden linked to the Employment Rights Act. Only 20 percent of small- and medium-sized businesses identified regulatory compliance as an organisational priority, compared with 32 percent of larger employers.
The CIPD warned that many smaller firms lacked dedicated HR support and may not fully understand the new legal requirements being introduced. James Cockett, its senior labour market economist and author of the report, said organisations were continuing to take a cautious approach because of sustained cost pressures.
“Our survey finds that organisations are prioritising cost management above growth and productivity ambitions, reflecting the cautious approach many businesses are taking in response to sustained increases in labour, energy, and wider operating costs, with further increases expected this year,” he said.
He said government support would be needed if employers were to invest and plan confidently.
“With employer confidence remaining low, it’s vital that government creates the right conditions employers need to invest, grow, and plan for the future. Targeted support for skills and workforce development and guidance to help employers comply with new measures in the Employment Rights Act will be crucial,” he said.
Cockett also said organisations should focus on workforce planning, skills and the effective use of artificial intelligence.
“With so much happening externally, organisations should focus on the areas they can directly influence. This means taking a proactive approach to workforce planning and ensuring investment in technologies such as AI is supported by the right mix of people, skills, and systems to deliver meaningful productivity gains,” he said.
Pay awards gather around 3 percent
The survey also pointed to further signs of restraint in pay growth. Median expected basic pay awards remained at 3 percent for the eighth consecutive quarter, with a growing concentration of employers planning increases around that level.
The proportion of employers expecting pay rises of between 3 percent and 3.99 percent rose from 25 percent to 40 percent. Fewer employers expected to award rises of 5 percent or more, down from 24 percent to 15 percent, while fewer were planning increases below 3 percent.
The CIPD said this suggested employers were facing less pressure to compete aggressively on pay, while still remaining mindful of cost-of-living pressures affecting staff.
But with inflation expected to rise, many employees are likely to feel worse off in real terms. Recruitment difficulties also appeared to ease slightly compared with a year earlier. Around 12 percent of employers expected major problems filling vacancies over the next six months, down from 15 percent last year.
But a third of organisations still reported hard-to-fill vacancies, suggesting skills shortages remain a persistent issue across parts of the economy.
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
