LONDON — Britain's labour market has settled into a freeze that economists are calling "low-hire, low-fire": employers are neither recruiting nor shedding workers in significant numbers, leaving job seekers locked out while existing staff stay put. The pattern differs from a traditional recession, where mass layoffs define the downturn, because the headline unemployment rate remains relatively stable even as opportunity drains from the market.
Vacancies have fallen for 39 consecutive quarters, reaching 717,000 open roles by mid-2025 — a level well below pre-pandemic norms. That sustained decline is the longest such run on record. A BDO LLP business trends survey found just 11 percent of British firms plan to take on new staff, compared with 28 percent who said the same a year earlier.
Chancellor Rachel Reeves' budget, delivered in November, introduced a national insurance increase for employers that adds £25 billion a year in costs across British businesses. That single measure changed how companies calculate the return on a new hire. Combined with higher minimum wages and other rising operating costs, the pressure to limit headcount grew sharply from April, when the increase took effect.
The budget compounded pressure on pay negotiations through a separate mechanism. Reeves froze income tax thresholds until 2031, extending a policy known as fiscal drag — in which rising wages push workers into higher tax bands without any formal rate increase, reducing real take-home pay. Treasury projections show that by 2029-30, the freeze will pull 780,000 additional workers into the basic rate of income tax, 920,000 into the higher rate and 4,000 into the additional rate.
To offset the erosion of purchasing power, employees are pressing for larger gross salary increases — which employers must either meet, cutting into margins, or resist, at the risk of losing experienced staff. That dilemma sits at the centre of the hiring freeze: businesses face higher costs at every stage of the employment relationship, from recruitment through retention.
A planned cap on salary-sacrifice pension contributions — set at £2,000 from 2029 — closes a further avenue that workers have used to reduce their tax exposure. The Treasury estimates the measure will raise £4.7 billion a year for the government. For workers, it removes a tool that softened the impact of fiscal drag; for employers, it adds another variable to an already complicated pay negotiation.
Even before the budget took effect, private-sector hiring intentions were sliding. The share of private businesses planning to recruit fell from 65 percent in 2024 to 57 percent by mid-2025. The BDO survey of 4,000 firms found employers prioritising cost control and resilience over expansion. The broader employment index produced by the survey fell to its lowest level since March 2011.
On the worker side, what researchers are calling "job hugging" has taken hold. Tighter household budgets, driven partly by fiscal drag eroding purchasing power, leave employees with less financial cushion to absorb the risks that come with changing jobs — probation periods, the loss of flexible working arrangements accumulated in a current role, or pension resets. Workers who would previously have moved to advance their careers or pay are staying put instead.
Employers are not entirely unhappy with that outcome. Organisations that spent the pandemic years and the "great resignation" period watching experienced staff walk out the door now benefit from greater workforce stability. The tacit knowledge that builds up inside a business — unwritten expertise about processes, clients and systems — is difficult to replace and costly to rebuild. Firms have a clear incentive to keep hold of workers who carry it, which reinforces the low-fire side of the cycle.
The freeze falls hardest on labour market entrants. School leavers, recent graduates and workers seeking their first role in a new sector face a shrunken pool of openings. With employers more cautious about every hire, risk aversion rises: firms are less willing to back an unknown candidate when the cost of a recruiting mistake — severance, lost productivity, a second round of hiring — has increased on every measure.
Indeed's 2026 mid-year UK jobs and hiring trends report described employer sentiment as weak, with little sign that the pattern will break in either direction in the near term. The combination of structural cost pressures from the national insurance rise, ongoing fiscal drag through the threshold freeze and cautious worker behaviour has produced a labour market that is stable on the surface and stagnant underneath.
