Employers prioritise cost management as confidence remains weak

Most UK employers are putting cost management first as rising business costs and ongoing uncertainty keep confidence low. That's according to the latest Labour Market Outlook from the CIPD. 

We surveyed more than 2,000 employers. The findings show many key indicators of employer confidence are close to record lows. Organisations are taking a cautious approach, managing costs rather than expanding or investing in growth. 

Cost management takes priority over growth 

Cost management is now the top priority for 58% of employers. That makes it the most common focus across organisations of all sizes and sectors. 

Improving productivity ranks second at 44%. Just 35% of employers say growing market share is a priority. This points to a cautious approach as organisations respond to continued economic and political uncertainty. Larger private sector employers are more likely to focus on growth, with 47% saying expanding market share is a priority. 

Rising energy, supplier and raw material costs are all adding pressure. Higher employment costs linked to increases in employer National Insurance contributions and the National Minimum Wage in recent times are doing so too. 

Employer confidence remains subdued 

Employer confidence remains at a near record low as the net employment balance stands at +10, similar to the +7 recorded last quarter. Confidence varies a lot by industry. The strongest outlook is in professional services (+25), IT (+20) and manufacturing (+19). The weakest is in compulsory education (-10) and the public administration sector (-9). 

More than one in five employers (22%) expect to make redundancies in the next three months. That rises to 26% in the public sector. 

At the same time, 63% of employers plan to recruit in the next three months. That's up slightly from 60% in the previous quarter. This increase comes largely from stronger hiring intentions in the public sector. 

SMEs face challenges with regulatory change 

Smaller businesses may struggle to respond to new regulatory requirements introduced through the Employment Rights Act 2025. 

Just 20% of SMEs say regulatory compliance is a priority. That compares with 32% of larger organisations. Many smaller employers lack dedicated HR support and are less aware of upcoming employment law changes. 

With many trade union reforms coming into force, employers will be required to upskill teams, particularly managers, around employment relations. Many organisations have limited experience of working with trade unions and will need to strengthen employment relations skills to reduce workplace conflict. 

Pay growth stable but pressures remain 

Median expected pay increases remain at 3% for the eighth quarter in a row. 

However, inflation is expected to rise. This means many workers are likely to see a real-terms fall in wages. The distribution of pay awards is also narrowing. More organisations are clustering around the 3% mark with fewer planning higher or lower increases. 

This suggests employers are balancing affordability with ongoing cost-of-living challenges for their employees. We have some practical guidance you can use to support employee financial wellbeing in this difficult period. 

Recruitment pressures ease but skills shortages persist 

Fewer employers expect significant difficulties in filling vacancies in the next six months. Just 12% expect major challenges. That's down from 16% a year ago. 

However, one in three organisations (33%) still report hard-to-fill roles. This highlights ongoing skills mismatches across the labour market. 

Looking ahead 

The findings show a labour market that remains stable, but low confidence and ongoing cost pressures continue to shape how employers make decisions. 

We encourage organisations to take a cautious approach to hiring freezes and redundancies that may create future skills gaps. Employers should focus on the areas they can directly influence such as taking a proactive approach to workforce planning. That means ensuring investment in technologies such as AI is supported by the right mix of people, skills and systems to deliver meaningful productivity gains.