UK employers are demonstrably prioritising cost management over business growth, a significant shift driven by persistent rising business expenses and a climate of global uncertainty that continues to dampen overall confidence. This recalibration of strategic focus is highlighted in the latest Labour Market Outlook report compiled by the Chartered Institute of Personnel and Development (CIPD), a leading professional body for HR and people management. The comprehensive survey, which polled over 2,000 UK employers across diverse sectors and organisation sizes, unequivocally identifies cost management as the paramount concern, eclipsing previous emphases on enhancing productivity and expanding market share.
This pronounced shift in employer priorities comes at a time of significant economic flux. The report, released in early 2026, paints a picture of an employment landscape where cautious navigation and fiscal prudence have become the order of the day. The CIPD’s findings suggest that many key indicators of employer confidence in the labour market remain stubbornly close to historically low levels. While larger organisations are showing a greater propensity to prioritise regulatory compliance, particularly in anticipation of the upcoming Employment Rights Act reforms, for the majority, the immediate imperative is financial resilience. Anticipated pay awards, a key barometer of economic optimism and a significant cost for businesses, are increasingly converging around the 3 percent mark, reflecting a constrained approach to wage inflation. In response to this complex economic environment, characterised by ongoing global instability and domestic cost pressures, the CIPD is strongly advising employers to concentrate on controllable elements such as sophisticated workforce planning, targeted skills development, and the strategic integration of artificial intelligence to bolster productivity.
The Ascendancy of Cost Management
The CIPD’s latest findings underscore a clear and compelling trend: cost management has firmly established itself as the primary objective for businesses in the United Kingdom. The survey reveals that a substantial 58 percent of employers cited cost management as their foremost priority. This figure transcends industry boundaries and organisational scale, indicating a universal concern.
This heightened focus on cost control is not without its underlying economic rationale. Employers are anticipating a sustained rise in a multitude of operational expenses. These include, but are not limited to, escalating energy prices, increased supplier costs, and the ongoing upward pressure on raw material prices. These factors are compounding the already elevated employment costs that businesses are contending with. This includes the impact of recent increases in employer National Insurance contributions and the National Minimum Wage, as previously detailed in earlier CIPD reports. For instance, the Winter 2025-26 edition of the Labour Market Outlook had already flagged these rising employment costs as a significant challenge.
In the wake of this overarching concern for cost containment, the second most significant priority identified by employers is improving productivity, with 44 percent of respondents highlighting its importance. This figure sees a notable increase among large private sector employers, where it rises to an impressive 55 percent. This suggests that while cost control is paramount, a segment of businesses, particularly larger ones, are actively seeking to offset rising expenses through efficiency gains.
Growing market share, a traditional driver of business ambition, has receded to third place in the hierarchy of priorities, with only 35 percent of employers deeming it a key focus. This indicates a prevailing cautious sentiment among many businesses, who are understandably adopting a more circumspect approach amidst the prevailing economic uncertainties. However, a more optimistic outlook is discernible within the large private sector, where intentions to grow market share have seen an uptick, reaching 47 percent. This divergence suggests that while the broader business landscape is geared towards consolidation and cost efficiency, larger, well-resourced firms may be strategically positioning themselves for future expansion.
Employer Confidence Lingers at Low Ebb, Despite Modest Hiring Upticks
The data collection for this crucial survey took place between late March and late April 2026. This period coincided with the escalation of conflict in the Middle East, a development that could have had far-reaching economic implications. However, in line with the Bank of England’s April 2026 Monetary Policy Report, the geopolitical events had not, at the time of the survey, materially impacted hiring intentions across the UK. This suggests a degree of resilience within the domestic labour market, at least in the short term.
Despite this apparent stability in hiring intentions, a broader measure of employer confidence remains conspicuously weak, hovering close to historical nadirs. The net employment balance, a key metric that gauges the difference between employers expecting an increase in staff levels and those anticipating a decrease over the forthcoming three months, stands at a subdued +10. This figure, while positive, indicates a cautious and perhaps incremental approach to workforce expansion.
Confidence in hiring is most robust within specific sectors. Professional services, encompassing fields such as legal and accounting, report the highest net employment balance at +25. The information technology (IT) sector follows closely with +20, and manufacturing demonstrates a healthy +19. These sectors, often characterised by higher growth potential and specialised skill demands, appear to be weathering the broader economic uncertainty more effectively.
Conversely, hiring confidence is significantly weaker in certain public sector domains. Compulsory education exhibits the lowest net employment balance at -10, followed by public administration and other public sector organisations at -9, and non-compulsory education at -5. This disparity highlights the differing economic pressures and fiscal constraints faced by public services compared to the private sector.
The prospect of redundancies remains a tangible concern for a significant portion of the employer base. More than one in five employers (22 percent) anticipate making redundancies in the next three months. This figure rises to a more concerning 26 percent among public sector employers, underscoring the potential for cutbacks within government-funded organisations.
On a more positive note, there has been a modest increase in the overall proportion of employers planning to recruit in the coming quarter. This figure has risen slightly from 60 percent in the previous quarter to 63 percent in the current survey. This growth in recruitment intentions is largely attributed to a stronger outlook in the public sector, where hiring intentions have seen a notable jump from 70 percent to 77 percent. This surge in public sector recruitment may reflect specific government initiatives or the anticipated impact of the Employment Rights Act reforms, which could necessitate increased administrative and HR capacity.
SMEs Face Hurdles with Evolving Regulatory Landscape
The implementation of the Employment Rights Act 2025, with key provisions coming into effect from April 2026, introduces a raft of new rights for employees and, consequently, significant compliance obligations for employers. The CIPD report highlights a potential challenge for Small and Medium-sized Enterprises (SMEs) in navigating these changes.
A mere 20 percent of SMEs identified regulatory compliance as an organisational priority. This stands in stark contrast to almost a third of larger firms (32 percent), who are more actively engaged with upcoming legislative changes. This discrepancy is concerning, particularly given that SMEs often operate with limited HR support and may lack the extensive in-house expertise to interpret and implement complex employment law. Without adequate guidance and resources, small businesses risk falling foul of the new legislation, potentially leading to legal challenges and financial penalties.
Recognising this potential gap, the CIPD is actively advocating for government intervention. The organisation is urging the government to ensure that SMEs have access to clear, accessible information and practical guidance. Furthermore, they are calling for targeted support mechanisms to help these businesses effectively comply with the new legislative framework. The successful implementation of the Employment Rights Act hinges not only on the clarity of the legislation but also on the capacity of all businesses, particularly the smallest, to understand and adhere to its requirements.
Pay Expectations Stabilise at 3%, But Real Wages Face Erosion
Median expected basic pay increases for the next 12 months have remained static at 3 percent for an eighth consecutive quarter. This consistent pay award expectation, while indicative of a degree of predictability, is set against a backdrop of anticipated rising inflation. Consequently, many employees are likely to experience a decline in their real wages, meaning their earnings will not keep pace with the rising cost of living.
Although the median pay award has held steady for two years, a discernible narrowing has occurred in the distribution of planned pay increases. The majority of planned awards are now clustered around the 3 percent mark. The proportion of organisations anticipating awards between 3 percent and 3.99 percent has surged from 25 percent to 40 percent. Conversely, fewer employers are planning to implement increases of 5 percent or more, with this figure declining from 24 percent to 15 percent. Similarly, the number of employers planning increases below 3 percent has also diminished.
This trend suggests that while employers may be facing less intense pressure to compete on pay in the current economic climate, they are nevertheless mindful of the ongoing cost-of-living pressures impacting their workforce. The consistent 3 percent award can be interpreted as an attempt to provide some measure of relief without unduly burdening businesses with escalating labour costs. However, the impact on employees will be dependent on the actual rate of inflation, which, if it exceeds the pay awards, will inevitably lead to a reduction in purchasing power.
Recruitment Pressures Ease, Yet Skills Gaps Persist
A positive development highlighted in the report is the easing of recruitment pressures. Fewer employers anticipate significant difficulties in filling vacancies over the next six months. Approximately one in eight employers (12 percent) now expect substantial challenges in recruitment, a decrease from 15 percent recorded a year ago. This suggests a potentially more favourable labour market for employers, with a larger pool of available talent.
However, the issue of skills shortages remains a persistent challenge across the UK economy. A significant one-third of employers (33 percent) still report having hard-to-fill roles. This persistent skills mismatch indicates that while the overall availability of candidates may be improving, there is a continued deficit in the specific skills and expertise required by many businesses. Addressing these skills gaps will be crucial for future economic growth and productivity, requiring concerted efforts in education, training, and reskilling initiatives. The ongoing dichotomy between the availability of labour and the availability of qualified labour presents a complex challenge that requires strategic, long-term solutions. The CIPD’s analysis implies that while businesses are focused on immediate cost management, the underlying structural issue of skills shortages will demand attention if the UK economy is to achieve sustained and inclusive growth in the coming years.
