The proportion of SMEs that have increased their workforce has fallen from 24% in Q4 2024 to 20% in Q1 2025, while 17% have cut back on staff.

The British Chambers of Commerce’s latest data found that 63% of firms said their workforce had remained constant.

The latest quarterly research, conducted before the recent Spring Statement, looked at the recruitment activity of more than 5,000 businesses across the UK, 91% of which are SMEs.

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BCC’s Quarterly Recruitment Outlook also found that the number of firms attempting to recruit fell from 59% in the autumn to 54% in winter.

Of those firms that have attempted to recruit in the past three months, 76% said they had experienced difficulties, down from 79% in the previous quarter.

Jane Gratton, BCC deputy director of public policy, said: “Firms are struggling under the weight of skills shortages, recruitment difficulties and spiralling employment costs.

“There are signs of businesses pausing recruitment plans, scaling back training investment and, in some cases, reducing the size of the workforce. The likely impact on job opportunities and business growth is worrying.”

Construction and engineering companies continue to find it hardest to find staff, with 83% reporting recruitment issues. The transport and logistics sector had similar difficulties, with 82% struggling. Even at the other end of the scale, most firms in marketing and communications (63%) still faced hiring problems.

Labour costs continue to be the main pressure businesses are facing to raise prices – cited by 73% of firms (compared with 75% in Q4 2024). The pressure is felt most in manufacturing (82%), transport and logistics (81%), hospitality (81%) and construction (80%).

Gratton added: “Firms are now facing higher bills from the rise in both employer national insurance contributions and the national minimum wage. The full impact won’t be seen until later this year.

“The recruitment crisis in the construction sector is particularly concerning. It was really encouraging to see the boost in construction skills investment announced at the Spring Statement, but it is unlikely to be the quick fix firms need.”

SME investment in staff

The number of businesses reducing investment in their workforce remains similar to last quarter, with 20% of responding firms reporting a cut in training spend compared with 19% in Q4. Meanwhile, 22% said they had increased training investment and 58% of businesses said training investment had remained the same.

“Continuing to loom large is the proposed employment rights legislation, which threatens to add huge extra costs and complexity for businesses,” said Gratton. “We need ministers to listen to business concerns and ensure the legislation strikes the right balance. The government must act now to minimise costs for businesses and tackle the ongoing skills crisis – giving firms the tools they need to invest, recruit and grow.”

A small hospitality firm in Cumbria told BCC: “We are still planning for a massive hit on our modest profitability when the new financial year starts. The changes to NI contributions, the reduction in rate support, and the hike in minimum wage are the biggest factors for caution in terms of investment or hiring new staff.”

A small manufacturing firm in Essex said: “Over the past six months we have reduced staff levels and will not increase staff for the next three years due to the changes to company tax and labour costs. As a result, we will now be moving all future expansion and employment to the USA.”

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