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Forty per cent of businesses in the UK experience weekly staffing shortages as a result of worker illnesses and recruitment challenges, new research by Indeed Flex has found.
The report also revealed that a third (34 per cent) were struggling to fill vacancies, reflecting a persistently tight labour market with low unemployment levels.
Two thirds (65 per cent) of employers said the national insurance hike would make it harder to increase wages and offer bonuses.
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A quarter (25 per cent) of businesses highlighted it as the factor that will have the biggest impact on hiring this year, ahead of the UK’s economic performance (24 per cent) and inflation (19 per cent).
To cope with these pressures, two in five (39 per cent) of firms were considering raising prices for customers, while 20 per cent said they might dip into savings and 15 per cent might have to make staff cuts.
Job vacancies and hiring freeze intensify
Despite this, companies cut jobs at the fastest pace in four years last month, according to the S&P Global final composite purchasing managers’ index.
The pace of job cuts in December was the highest in more than 15 years (excluding the pandemic) with nearly one in four private sector firms cutting vacancies and introducing hiring freezes.
Data from KPMG and the Recruitment & Employment Confederation (REC) also found that permanent placements and vacancies fell at accelerated rates in December, according to their latest Report on Jobs.
S&P Global’s report, compiled from 400 responses from recruitment and employment consultancies, found an acceleration in the rate of starting salary inflation in December, suggesting firms were willing to raise pay for high-quality staff.
Temporary vacancies also fell, with the decline in demand for temp staff the greatest in four and a half years.
Optimism for the future amid cautious hiring trends
On the contrary, half (49 per cent) of employers expect to increase hiring activity throughout 2025, and nearly a third (30 per cent) plan to use temporary workers, according to Indeed Flex.
Tim Moore, economics director at S&P Global Market Intelligence, said concerns about rising payroll costs and a general unease around business investment were the main factors weighing on growth in 2025.
“Faced with subdued demand conditions and hikes to employment costs, many service providers opted to curtail their staff hiring and delay backfilling roles in December,” he said.
Moore noted that rising input price inflation added to the “gloomy” near-term outlook for service providers.
Jon Holt, group chief executive and UK senior partner at KPMG, said the start of the new year was a “muted” one for the UK jobs market.
“The hiring market could continue to show signs of caution in the short term, as businesses pause to take stock of higher employment costs, a more gradual pace of interest rate cuts and rising inflation,” he explained.
Neil Carberry, REC chief executive, said that while the report emphasised a “weak mood” among some businesses after a tough budget, “sentiment can change quickly”.
He added that December was always a hiring low point and the new year “brings new hope”, with the fundamentals of unemployment and economic growth “better than many appreciate”.
“It is what happens now, as firms return to the market in January, that will decide the path ahead,” he said.
Recruitment and retention strategies
Martin Drake, director of Higher HR, said it was “no surprise” that organisations were struggling to fill vacancies.
He noted that many businesses were not positioning themselves well enough to attract talent, as they were keen to revert to “fully back in office” while jobseekers prioritised hybrid and flexible work.
“Overall operating costs will continue to influence many organisations and their recruitment plans but I feel that overall there will still be some growth in vacancies through 2025,” added Drake.
Alan Price, CEO of BrightHR and COO at Peninsula Group, said businesses were being “squeezed from all sides” and were likely to cut back on hiring for the foreseeable future while they focused on improving operational efficiency.
“In 2025, businesses should pivot their hiring and retention strategies to focus on quality over quantity, looking at how they can fill fewer roles with the best candidates available and upskilling their current staff to reduce hiring costs.
“Employee retention will be vital, and businesses should aim to improve retention by offering staff attractive and meaningful workplace benefits such as tailored mental health support and flexible working options.”
Kelly Armitage, HR technical consultant at AdviserPlus, said organisations should implement “clear sickness management processes” to ensure consistency across the board, and maintain communication with employees who were off work.
“Having the right technology and people analytics in place to identify trends in sickness absence can help to surface where there may be issues impacting employee wellbeing, such as a manager capability issue or pockets of poor culture. Taking a data-driven approach to identifying sickness absence issues and skills gaps is vital to build a more resilient and agile workforce,” she said.
She added that it was “crucial” that organisations had policies that were “holistic”, and provided training for managers to recognise and support mental health challenges before they escalated into sickness absences.
For further resources on hiring, visit the CIPD’s dedicated topic hub