The UK labour market remains mired in stagnation, with employment levels hovering near a 13-year low, as rising labour costs and policy uncertainty under the Labour government continue to sap business confidence and hiring appetite.
According to the latest Business Trends report, the Employment Index dipped yet again in June, falling to 94.22 from 94.32 in May — the lowest levels seen since the global financial crisis.
Despite a modest rebound in output from the services sector, driven by improved consumer spending and seasonal weather effects, hiring remains deeply constrained.
Analysts point to Labour’s controversial decision to hike National Insurance Contributions (NICs) in April as a primary factor weighing on employment. The increase has significantly raised costs for employers, prompting many firms to freeze or reduce recruitment. Payrolled employment figures offer stark evidence of the trend, with May seeing a net drop of 109,000 jobs — nearly double the losses recorded in April.
“Demand for labour is adjusting,” the findings from BDO states, “with many firms holding back on recruitment.”
Meanwhile, business sentiment continues to weaken. The Optimism Index declined to 91.58 in June from 92.30 the previous month, as companies brace for further fiscal tightening, including the threat of additional tax rises in the Autumn Budget. Labour’s mixed signals on future business taxation and regulation have done little to instil confidence in the private sector.
Core cost pressures, especially around wages and compliance, are stretching company margins. While recent trade agreements with the US, EU, and India have provided some clarity for manufacturers, the sector remains volatile, with no consistent relief from ongoing headwinds.
Scott Knight, Head of Growth at BDO, commented: “We’re seeing early signs of recovery in business output, largely down to the services sector who have buoyed the economy for a second month in a row.”
However, Knight’s cautious optimism is tempered by broader economic indicators. The Business Trends report forecasts that business optimism will remain well below long-term averages through the remainder of the year, with little indication that current government policies will reverse the downward trajectory in employment.
The data paints a troubling picture of a labour market under strain, as employers grapple with mounting costs and unclear signals from Westminster, a toxic mix that continues to chill recruitment and stall recovery.
Source: BDO
