Firms freeze hiring as Budget uncertainty and policy plans weigh on UK's labour market

Businesses across the UK have paused recruitment as mounting uncertainty over the Government's Autumn Budget and planned policy changes depress hiring, a joint report by KPMG and the Recruitment and Employment Confederation (REC) said.

The KPMG-REC report, published Sept. 7, found the number of people actively seeking work is increasing at the fastest rate since November 2020, driven by firms making redundancies and deferring permanent hires while they reassess costs and investment plans.

Executives cited a range of pressures underlying the cautious approach. Firms said they were weighing the effect of planned increases in National Insurance, a substantial rise in the minimum wage and a Labour workers’ rights bill, alongside broader worries about inflation, weak growth and higher borrowing costs on global bond markets.

Jon Holt, chief executive and senior partner at KPMG UK, said it was unlikely there would be an immediate rebound in recruitment while businesses evaluated policy commitments and the rapid pace of technological change, including investment in artificial intelligence. "It’s unlikely we’ll see a significant shift in recruitment patterns in the near term as businesses evaluate their investment strategies in response to policy commitments and the rapid pace of change brought by AI and new technologies," he said.

Neil Carberry, chief executive of the REC, urged caution in Budget decisions intended to shore up public finances. "All eyes are now on the Autumn Budget, in hope that the Chancellor won’t do any further damage to the labour market with costs on hiring. For the economy to thrive, the Budget must recognise the need for investment in people," he said.

The report’s findings coincide with other signs of strain in the labour market. The Bank of England has warned that job cuts are occurring at a pace not seen since 2021, and official indicators show a slowdown in hiring alongside rising unemployment. Analysts say the currency of market concern has pushed up government borrowing costs, increasing the pressure on fiscal policymakers ahead of the Budget.

Business leaders have signalled a retrenchment in graduate recruitment and other entry-level hiring. Marco Amitrano, chief executive of PwC UK, told the Sunday Times he planned to reduce graduate intake this year, reflecting wider uncertainty among both domestic and international employers watching policy developments.

Estimates of the fiscal gap facing the new government vary. Some commentators have suggested the Budget could need to bridge as much as £50 billion, while other assessments put the shortfall at between £20 billion and £30 billion ahead of the scheduled Budget on Nov. 26. The scale and composition of any fiscal measures, and whether they fall more on taxation, borrowing or spending, remain points of debate among economists and market participants.

Recruitment firms and accountants said the combination of higher expected labour costs, regulatory change and rapid adoption of labour-saving technologies was prompting companies to pause hiring and accelerate efficiency measures. The REC has previously warned that measures which significantly raise the cost of employing staff can reduce demand for labour, particularly for small and medium-sized enterprises.

While the report highlights an immediate cooling in the jobs market, it also notes variation across sectors. Employers in some high-demand fields continue to recruit, particularly in specialist technology and healthcare roles, whereas hiring freezes have been more pronounced in cost-sensitive sectors.

The policy choices set out in the Autumn Budget, and how markets react to them, will be watched closely by firms weighing recruitment and investment decisions. Until then, the KPMG-REC report concludes, many employers will remain cautious as they factor in wage pressures, potential tax changes and the implications of new workplace legislation.

Further government commentary on the report or specific Budget measures was not available at the time of publication.