Job market slowdown: how can businesses adapt?

The UK job market is facing an uphill battle, as new research suggests that concerns about inflation and interest rates are causing businesses to be cautious when it comes to hiring. 

Research from careers website Reed.co.uk, as reported by LBC, has revealed that job listings have seen a sharp drop over the past year, leaving many jobseekers in a tough spot.

One likely cause is an increase in employer National Insurance Contributions (NICs), which has kept the cost of employment rising, throwing many SME recruitment plans into chaos.

More layoffs, fewer job opportunities

The reign of redundancies from last year has continued into 2025. Major retailers including Aldi, New Look, and Ocado made job cuts earlier this year in efforts to protect profitability. The tech sector has been a continuous source of layoffs as well, with companies like Google, Dyson, and Meta downsizing the workforce considerably in the last 12 months.

The trend looks set to continue, as a Labour Market Outlook report by CIPD reveals that redundancy expectations have increased from 22% to 27% for private-sector businesses.

But while some companies are forced to let staff go in order to lower staffing costs and protect profit margins, the vast majority will opt for hiring freezes. 

In our survey of 531 small business owners, completed at the end of last year, we found that 12% of SMEs report no plans to hire this year.

It’s no surprise, then, that a study by Reed has revealed that new job listings have declined by 23% compared to the previous year. The findings were first reported by LBC. 

What’s behind the hiring freeze?

One of the main causes behind the decline in job adverts is the rise in the employer NIC rate — from 13.8% to 15% — which came into effect last Sunday, on April 6.

The change has placed significant financial pressure on SMEs, with many turning to cost-cutting measures to stay afloat. One report by Personnel Today found that 46% of employers believed that the NIC increase would impact hiring plans. 22% also cited limited budgets due to NICs as the reason for freezing or delaying hiring.

What’s more, the increase in the National Minimum Wage (NMW) has made hiring low-income staff more expensive. Combined with ongoing economic uncertainty and rising prices, it’s no wonder that businesses are hesitant to commit to long-term hiring.

The workplace model could also be a factor. Rent and utility bills are two business overheads that have increased the most in the past half decade. 58% of fully office-based companies told us they had made layoffs to streamline costs in 2024, versus only 45% of remote firms.

How should SMEs respond?

While smaller firms may not be able to afford to hire new staff right now, talent remains crucial to business growth and keeping up in a competitive market. After all, in our survey of SME leaders, 52% of businesses reported that a talented and motivated workforce was a key contributor to their success last year.

And let’s not forget to factor in the skills shortage either. While it’s a decrease compared to last year, 76% of employers reported difficulty in filling roles due to a lack of talent. 

With hiring off the cards, now is a good time for businesses to evaluate their employee benefit packages and seek out clever, cost-efficient ways to retain, not recruit, staff. 

These don’t have to break the bank either. Perks like flexible working, in-house training opportunities, or the option to work from anywhere can go a long way to keep skilled workers around. Plus, it won’t hurt to attract the right candidates when hiring picks back up.

The road ahead

The UK jobs market is going through a rough patch. With overwhelming economic and financial pressures, it’s a good time for businesses to take a step back and think about what they really need to grow, and how to hang on to the people who can make that happen.

As things settle, the businesses that focus on looking after their teams and offering real value for employees will be the ones that come out on top.