British businesses are expressing the most pessimistic hiring outlook in nearly fifteen years, according to new data from consultancy firm BDO. The firm's employment index, which measures hiring intentions, remained at a concerning 93.30 in February, marking its weakest reading since March 2011. This sustained period of multi-year lows highlights the severe challenges facing UK employers as they grapple with mounting employment costs.
Employment Costs Cripple Hiring Plans
Chief executives across the country are sounding the alarm as Labour's workers' rights reforms and significant hikes to minimum wages create substantial financial burdens. These policy changes are weighing heavily on businesses, contributing to record levels of youth unemployment and making hiring decisions increasingly difficult for employers. While the pace of decline in hiring intentions has slowed slightly in recent months, BDO researchers indicate that meaningful recovery appears unlikely in the current economic climate.
Service Sector Defies Gloomy Employment Trends
Despite the bleak hiring landscape, business output in the United Kingdom has reached its highest level in a year. A notable bounce in the services sector drove economic activity to increase for the third consecutive month, according to BDO's output index. The index, which measures activity across key economic sectors, rose to 98.80 in February from 97.67 the previous month.
Contradictory Economic Indicators
Improvements in sales pipelines and new customer inquiries within the services industry have helped offset concerns about growing unemployment and escalating hiring costs. The service sector, which contributes approximately 80 percent of the UK's GDP, has managed this output increase despite resorting to substantial job cuts and price hikes in response to rising cost pressures from government policy.
The industry has been forced to implement solid payroll reductions while continuing to face the effects of Chancellor Rachel Reeves' maiden Budget from October 2024. That budget included a 1.2 percent increase to employer's national insurance contributions, which took a major chunk out of firms' bottom lines alongside minimum wage hikes that piled additional cost pressures onto employers.
Hospitality Sector Provides Unexpected Boost
Researchers noted that the hospitality sector played a significant role in driving the service sector bounce. The government's £300 million business rates relief package has encouraged activity within this industry. In January, Chancellor Reeves bowed to significant pressure from the hospitality industry regarding the cost of Budget reforms to business rates, ultimately handing tax breaks to pubs and live music venues.
Potential Threats to Economic Recovery
BDO's research warns that the current boost in output may be short-lived. The ongoing conflict in the Middle East and the threat of further US tariffs could weigh heavily on UK businesses in the coming months. These global disruptions create additional uncertainty for an economy already struggling with domestic challenges.
Scott Knight, head of growth at BDO, emphasized the precarious situation: "Global disruption puts the spotlight firmly on the economy. While momentum is building in pockets of the economy, real growth is impossible without targeted action to fix the floundering labour market."
The contradictory signals from the UK economy—with hiring intentions at historic lows while service sector output rises—create a complex picture for policymakers and business leaders navigating an increasingly challenging economic landscape.
