As of March 2025, the UK continues to grapple with significant labour shortages, a persistent challenge resulting from the aftermath of COVID-19, Brexit, and other factors such as skills mismatches, an aging workforce, and increasing economic inactivity. Nearly one-third of UK businesses are still experiencing labour shortages, even though job vacancies are down 32% compared to January 2024.
Current State of Labour Shortages
While Manpower Group's 2025 Talent Shortage report indicates a slight easing, with 76% of employers reporting difficulty filling roles due to a lack of skilled talent (down from 80% in 2024), the situation remains critical. The number of job vacancies has fallen to 819,000 in November 2024 to January 2025, but this figure is still above pre-pandemic levels.
Key Sectors Affected
Labour shortages are particularly acute in:
- Healthcare and social care
- Hospitality
- Accommodation and food services
- Professional, scientific & technical activities
Causes of Labour Shortages
- Brexit: Reduced pool of EU workers
- Pandemic aftermath: Long-term sickness has removed over 2.5 million working-age adults from the workforce
- Early retirements: Many workers aged 50-70 left during the pandemic
- Skills mismatch: Disconnect between employer demands and job seeker skills
- Economic uncertainty: Rising costs, including employer National Insurance contributions
Impact on the Economy
These shortages have worsened inflation and limited public service funding. According to a CBI report, nearly half of surveyed businesses have been unable to meet expected output due to labour shortages.
Labour Market Trends
The KPMG and REC UK Report on Jobs survey indicates that permanent placements fell for the twenty-ninth consecutive month in February 2025, though at a softer rate. Starting salaries are rising at the slowest pace in four years, reflecting weaker demand for workers and improved candidate numbers.
Unemployment and Economic Inactivity
The unemployment rate is forecast to be around 4.5% in Q1 2025, according to the Bank of England. However, the issue lies more in economic inactivity, with over 9 million people aged 16-64 neither working nor searching for work.
Government and Business Responses
1. Upskilling and reskilling initiatives
2. Targeted recruitment campaigns, especially for older workers
3. Potential immigration reforms to address critical skill shortages
4. Increased focus on retention strategies and productivity improvements
Looking Ahead
While challenges persist, there are signs of adaptation in the labour market. Businesses are increasingly focusing on retention strategies and smarter use of technology. The anticipated interest rate cuts by the Bank of England later in 2025 may stimulate investment and hiring activity.
As the UK navigates these complex labour market dynamics, addressing the root causes of shortages remains critical. Coordinated efforts between businesses, government, and educational institutions will be essential to alleviate the talent crisis and foster economic resilience in the face of ongoing challenges.
.png?width=180&height=180&name=Ecovadis%202024%20(200%20x%20200%20px).png)
