As the UK labour market shows further signs of cooling, the Chartered Institute of Personnel and Development (CIPD) has warned that employer confidence may be weakening in the face of economic and legislative headwinds, potentially discouraging hiring at a time when youth unemployment remains high.

Responding to the latest labour market data from the Office for National Statistics (ONS), James Cockett, senior labour market economist at the CIPD, said that falling vacancies and flatlining payrolled employment suggest a continued slowdown, exacerbated by policy uncertainty and the rising cost of employment.

“It appears that the full impact of national insurance changes has now been reached, with payrolled employee numbers remaining stable,” Cockett commented. “However, employers are likely to be cautious about November’s Budget and upcoming changes to employment legislation, which may deter hiring further over the coming months.”

Young people at risk

While unemployment among 18–24-year-olds has fallen slightly, it remains elevated at 12%. Cockett warned that employers in key sectors such as hospitality and retail, which traditionally offer entry-level opportunities, may scale back hiring due to high employment costs and legislative uncertainty.

“It’s critical that employers aren’t discouraged from hiring young people,” he said. “Better training and employment opportunities will ensure they start their working lives on the right foot while helping employers build future talent pipelines.”

The CIPD is calling on the government to go beyond its existing youth guarantee and introduce an apprenticeship guarantee for all 16 to 24-year-olds, to expand access to valuable “learn and earn” opportunities.

Legislation concerns

Cockett also urged ministers to consult thoroughly on measures proposed in the Employment Rights Bill, warning that poorly implemented secondary legislation could increase complexity and deter job creation.

“It’s vital these measures don’t act as a headwind on employment growth or add unnecessary cost and complexity to the recruitment process, particularly for younger workers.”

Pay pressures remain

On pay trends, the CIPD pointed to two key drivers of continued wage growth. Firstly, public sector pay is being boosted by earlier implementation of agreed uplifts in 2025 compared to 2024. Secondly, sectors such as hospitality and retail are still absorbing the effects of April’s rises in national insurance and the minimum wage, placing further pressure on payroll costs.

As employers await clarity in the upcoming Budget, the message from the CIPD is clear: without targeted support for youth employment and a balanced legislative approach, the labour market may struggle to regain its momentum.