5:43 am - February 25, 2025
The current state of the UK economy is causing concern among businesses and economists, as companies are scaling back their investments and hiring plans due to uncertainty and a lack of momentum. A recent report by the Recruitment and Employment Confederation (REC) and KPMG highlights that permanent staff vacancies have declined at the fastest rate since August 2020. This slowdown is attributed to budget measures introduced by the government, which are being described as “brakes” on hiring activity. Consultants working with these organizations have noted that redundancies are on the rise, and the increased cost of employing staff, tied to government policies, is weighing heavily on businesses’ ability to hire. Temporary billings have also been hit hard, falling at the fastest rate since June 2020. This signals a challenging period for the job market, as companies adopt a “wait and see” approach, hesitant to expand their workforces until there is clearer evidence of economic recovery.
Neil Carberry, the chief executive of the REC, emphasizes that building business confidence takes time and real action. He noted that the current economic climate, marked by an “autumn of fiscal gloom” and significant upcoming tax increases, is creating uncertainty and acting as a barrier to progress. The government has warned of a tough budget ahead, citing a £22 billion black hole in public finances left by the previous administration. In response, the October budget placed a significant portion of the £40 billion in tax hikes on businesses, with £25 billion of this burden falling on companies through adjustments to employer national insurance contributions starting in April. Business groups have expressed concerns that these additional costs will directly impact investment and hiring, with some warning that the financial strain could be passed on to consumers in the form of higher prices.
The impact of these measures is already being felt in the job market. Official figures released last month revealed a decline in the number of payrolled employees, contributing to a rise in the unemployment rate to 4.4%. This data was the first to cover the month of November, which followed the budget announcement. Private sector surveys have further indicated an increase in redundancies, with recent S&P Global purchasing managers’ index readings showing the highest pace of job cuts in four years. Major employers such as Sainsbury’s and BP have also announced job losses since the budget, underscoring the broader trend of businesses cutting back on staff to navigate the economic uncertainty.
The Treasury has defended the budget measures, arguing that they are necessary to address public finances and enable much-needed investment in public services. The government’s growth agenda, which includes infrastructure development, green energy investment, and planning reforms to boost construction, is expected to have a positive impact on the economy. However, economists predict that these efforts will only begin to bear fruit in the second half of the current parliament. In the short term, the Bank of England has revised its growth forecast for the UK this year, lowering it from 1.5% to 0.75%, citing the national insurance increase as a key factor weighing on economic activity. The Bank also noted that while it is too early to assess the impact of trade tariffs imposed or threatened by former US President Donald Trump, such protectionist measures are generally detrimental to economic growth.
The combination of tax hikes, redundancies, and hiring slowdowns paints a concerning picture for the UK economy. Businesses are clearly feeling the pinch, and the government’s budget measures, while intended to stabilize public finances, are having an immediate and noticeable impact on employment and investment. The “wait and see” approach adopted by many companies reflects a broader sense of caution and uncertainty, as firms seek to navigate a challenging economic landscape. With unemployment rising and job losses becoming more frequent, the coming months will be critical in determining whether the government’s strategy can restore confidence and stimulate growth, or if the brakes on hiring and investment will persist.
In the meantime, the real-world consequences of these economic challenges are being felt by workers and businesses alike. The decline in permanent staff vacancies and the sharp drop in temporary billings suggest that the job market is becoming increasingly volatile. As companies grapple with higher costs and uncertainty, the risk of further job losses and reduced investment looms large. The government’s growth agenda offers hope for the future, but the immediate focus for many will be weathering the storm of fiscal tightening and economic slowdown. With the Bank of England revising its growth forecasts downward and businesses cutting back on hiring, the UK economy faces a tough road ahead, requiring careful navigation to avoid a prolonged period of stagnation and decline.