UK employers are prioritising cost management over growth as rising business costs and global uncertainty continue to weigh on confidence.
This is according to the latest Labour Market Outlook from the CIPD, the professional body for HR and people development.
The survey of more than 2,000 UK employers found that:
- Cost management is the top priority for UK employers, regardless of sector and size, ahead of improving productivity and growing market share
- Many key labour market indicators of employer confidence remain close to record lows
- Larger employers are significantly more likely than SMEs to prioritise regulatory compliance as the first Employment Rights Act reforms come into effect
- Anticipated pay awards are gathering around the 3% mark
Against a backdrop of continued economic and geopolitical uncertainty, the CIPD is urging employers to focus on factors within their control, such as workforce management, skills development, and effective use of AI to boost productivity.
The latest survey found that cost management is by far the key priority for organisations, regardless of sector and organisation size, with 58% of employers citing it as their key priority. Energy, supplier, and raw material costs are all likely to rise, compounding already higher employment costs due to rises in employer National Insurance and the National Minimum Wage as identified in the last report.
Improving productivity was the second biggest priority (44%), rising to 55% among large private sector employers. Growing market share was third at just 35%, suggesting that many businesses are taking a cautious approach in ongoing uncertainty. Intentions to grow market share increased to 47% of large firms in the private sector.
The survey was conducted between late March and late April 2026, following the onset of conflict in the Middle East. In line with the Bank of England's latest monetary report, the conflict does not yet seem to have materially affected hiring intentions in the UK.
However, employer confidence remains close to record low levels.
The net employment balance – the difference between employers expecting an increase and those expecting a decrease in staff levels over the next three months – remains subdued at +10. Hiring confidence is strongest among employers in professional services, including legal and accounting (+25), IT (+20) and manufacturing (+19). It is weakest in compulsory education (-10), public administration and other public sector organisations (-9) and non-compulsory education (-5).
More than one in five employers (22%) still expect to make redundancies in the next three months, rising to a quarter of public sector employers (26%).
In more positive news, the overall proportion of employers planning to recruit in the next three months has risen slightly from 60% last quarter to 63% this quarter, driven largely by stronger hiring intentions in the public sector, which increased from 70% to 77%.
The Employment Rights Act 2025, with some elements effective from April 2026, brings significant new rights for workers and substantial compliance requirements for employers. Just 20% of SMEs identify regulatory compliance as an organisational priority, compared with almost a third of larger firms (32%). With little or no HR support, and limited guidance, small businesses often lack awareness of employment law and may struggle to comply with the changes.
The CIPD is calling on government to ensure SMEs have access to clear information, practical guidance, and the support they need to comply with the new legislation.
James Cockett, senior labour market economist at the CIPD and author of the report, said:
“Our survey finds that organisations are prioritising cost management above growth and productivity ambitions, reflecting the cautious approach many businesses are taking in response to sustained increases in labour, energy, and wider operating costs, with further increases expected this year.
“With employer confidence remaining low, it's vital that government creates the right conditions employers need to invest, grow, and plan for the future. Targeted support for skills and workforce development and guidance to help employers comply with new measures in the Employment Rights Act will be crucial.
“With so much happening externally, organisations should focus on the areas they can directly influence. This means taking a proactive approach to workforce planning and ensuring investment in technologies such as AI is supported by the right mix of people, skills, and systems to deliver meaningful productivity gains.”
Median expected basic pay increases for the next 12 months remain at 3% for the eighth consecutive quarter. With inflation expected to rise, many will likely feel worse off.
Even though the median pay award has remained unchanged for two years, the distribution of planned pay awards has narrowed around the 3% mark. The share of organisations expecting to award increases of between 3% and 3.99% has risen from 25% to 40%. By contrast, fewer employers expect to award rises of 5% or more, down from 24% to 15%, and fewer are planning increases below 3%. This suggests that whilst employers are facing less pressure to compete on pay, they are remaining mindful of ongoing cost-of-living pressures affecting their workforce.
Fewer employers expect major difficulties filling roles in the next six months. Around one in eight (12%) anticipate significant problems filling vacancies, down from 15% a year ago. A third (33%) of employers still report hard-to-fill roles, highlighting ongoing skills mismatches across the economy.
