British employers may turn to hiring freezes in the coming months, according to new data from the Institute of Directors (IoD). The IoD's economic confidence index edged up to -64 in April from -76 in March, but remains close to historic lows. Headcount expectations slipped to minus three from zero, signalling that more firms now plan to cut staff than expand their workforce.
Labour Market Recovery at Risk
The figures suggest the labour market recovery could stall. IoD chief economist Anna Leach warned that firms could impose hiring freezes as they deal with uncertain cost rises from the Iran war. Revenue expectations nudged up to +17 from +13, and investment intentions improved slightly to -9 from -13, though they have remained negative every month since August 2024. Cost pressures eased marginally to +85 from +88, but remain elevated.
Impact on Treasury and Economy
An extended freeze on hiring could weaken morale among Brits, with official figures indicating vacancies have fallen to a five-year low. The Lloyds Bank business barometer found that 17% of firms expect to reduce staffing levels, though more than half of respondents suggested headcount could increase. Business confidence, regularly cited by Labour ministers, fell despite potential for stronger output in the coming year. The surveys will barely lift spirits in the Treasury, where economists are scrambling to understand the implications of potential fuel shortages and inflation spikes.
Government Response and Business Concerns
The government has held emergency Cobra meetings to discuss policy responses to the Iran war. Bank of England Governor Andrew Bailey revealed he warned officials about second-round effects, where wage growth pressures could trigger another surge in inflation. One in five business leaders in the IoD survey reported shortages linked to the Middle East conflict, with a third describing them as significant. Fuel and energy shortages were the most common, affecting 55% of those hit. More than half of respondents worried about future shortages.
Leach acknowledged a small improvement in April’s outlook but cautioned that gains came from very low bases. She pointed to targeted investment in AI and renewables but said cost pressures, weak demand, and regulatory burdens continue to weigh on sentiment. “There must be an honest recognition that the UK will remain reliant on fossil fuels for many years to come, even while we push hard for the shift to renewables,” Leach said. “It makes sense to exploit and monetise our own resources, for the UK’s economic security.”
