The UK labour market continues to have its ups and downs as businesses adapt to economic challenges, policy changes, and a tight labour supply. However, for business leaders who can be agile, strategic, and forward-thinking in 2025, there will be fruitful times ahead in the world of recruitment and retention.
We recently spoke with industry expert Neil Carberry, CEO of Recruitment & Employment Confederation (REC), about what he thinks lies ahead for the UK labour market this year.
Economic trends and market challenges
Over the past decade, the UK economy has faced a series of transformative events, from Brexit to the pandemic. These disruptions have left a lasting impact on labour market dynamics and can still be felt today.
Neil explained that the last two consecutive years have seen the weakest labour market demand since the Recruitment & Employment Confederation began collecting data in 1997. Rising costs and the political uncertainty leading up to last summer’s election, have meant businesses have been more selective in their hiring practices. The long-term effects of the pandemic are still being felt and continue to influence hiring strategies.
A recent Deloitte survey also reveals that finance leaders are planning to respond to the upcoming rise in employer National Insurance Contributions by cutting costs. However, CFOs are anticipating the Bank of England to reduce interest rates to 4.0% by the end of 2025 potentially increasing consumer spending and boosting investment.
Opportunities amid uncertainty – How to capitalise on growth in 2025?
For those businesses willing to adapt, 2025 could offer plenty of opportunities. It could be an opportunity for CFOs to re-educate their senior leadership teams and manage financial resources with confidence.
1 – Renewed confidence in the UK as an investment destination
Now that we have a Labour government, the very nature of the British political system offers a degree of certainty in the fact that we will have a Labour government for the next few years. Despite the Government raising national insurance contributions and making changes to capital gains tax, the City looks at these a little differently compared to the average employer. There is positivity. Coupled with the stability of the UK’s political landscape, this will build confidence with overseas investors that the UK will once again be a stable investment destination.
2 – Expect a positive upturn this year
Neil explained that the UK’s economy follows a familiar cycle and said that the underpinning pieces of the economy are looking quite strong. New mortgage data coupled with UK households having as much equity as they have debt, all point towards the economy being on the up. Businesses could take advantage by preparing their recruitment drive now and executing plans halfway through the year.
3 – Strategic workforce planning
With labour supply tight, workforce planning is essential. Neil noted how businesses have been more selective, focusing on critical hires and temporary staffing where necessary. While temporary hiring can offer flexibility, it’s becoming more expensive for agencies, so organisations must weigh the cost against potential benefits. Longer-term, companies should invest in training and development programmes to upskill their existing workforce, building resilience and loyalty in the process.
4 – Adjust to the new cost of capital
Neil suggested that the era of “free money” from 2007 to 2022 is over. So businesses need to adapt to a world where the cost of capital is returning to historical norms. CFOs and financial directors must ensure financial strategies align with these new conditions. This may involve re-evaluating investment priorities, focusing on cost efficiency, and rethinking long-term financial goals.
5 – Prioritise employer branding
At Core3, we’re seeing businesses compete harder to attract and retain the best talent. That’s why we believe employer branding is no longer optional. The Indeed 2025 UK Jobs & Hiring Trends Report emphasises that companies showcasing flexibility, strong values, and employee well-being are better positioned to stand out in a constrained labour market. Investing in a strong employer value proposition will help organisations attract skilled professionals who are increasingly selective about where they work.
6 – Leverage technology and efficiency
The use of AI continues to accelerate in pretty much every industry. Automating repetitive tasks and streamlining recruitment processes can help businesses save time and money while improving the candidate experience. Additionally, using data and analytics to get ahead of the game and make predictions about hiring needs and market trends can give a business a competitive edge over its competition.
7 – Focus on employee retention
With the labour supply remaining tight, retaining existing employees is more important than ever. Offering competitive salaries, benefits, and professional development opportunities can reduce turnover. Moreover, a culture of trust and engagement will ensure employees feel valued and motivated to contribute to the organisation’s success.
While there may not be much wiggle room in the labour market right now, the outlook, in Neil’s eyes, is a positive one and come June, organisations could have some recruitment joy.
What are your thoughts on how the labour market will shape up in 2025?
If you are planning a recruitment campaign and need help crafting your employer value proposition reach out to one of our expert team. We’re passionate about putting the right people in the right place at the right time.
