economics

On a vaguely positive note, inflation dropped from 3.4% in December to just 3% in January. The Bank of England estimates that inflation will fall again by April to the target 2%. This is likely to prompt at least one interest rate cut, potentially in March. 

However, the factors driving the drop in inflation were less positive. Unemployment, according to the ONS hit a five-year high, up to 5.2% in the quarter ending December 2025, from 5.1%. Joblessness has now increased by one percentage point over the last year, driven largely by last April’s increased NI costs and the rise in the minimum wage. Particularly badly hit have been younger employees – youth unemployment is now 16.1%, above the average across the EU – the first time this has happened since records began in 2000, according to the Resolution Foundation.

The economy grew by just 0.1% in 2025’s final quarter, against a forecast of 0.2%, according to the ONS. 

Such news prompted a letter from the Federation of Small Businesses to Rachel Reeves about their concerns over rising energy bills, business rates and higher employment costs. They estimate that a third of their members will be forced to cut output levels or even shut down. A similar note was struck by the British Retail Consortium which reported that 61% of retailers expect to reduce the number of hours worked by their staff, with 45% planning to freeze hiring. 

A similar picture was painted via a survey from the CIPD which warned that the increased protection to workers will stymie job creation. 37% of 2,000 firms surveyed were planning to reduce recruitment of new permanent staff as a result. Interestingly, more than half of those businesses polled anticipated an increase in workplace conflict. Government experts have put the bill for these changes to businesses at £1bn – however, the CIPD fears this has not taken into account the additional time and work likely to involve HR as a result of implementing such changes. 

There was more confident mood music from Robert Half, the recruitment firm’s survey suggests that 58% of UK finance and account employers expect to increase their permanent headcount by the summer – up from 8% in the previous six months. Digital transformation initiatives were seen as the prime reason for such hiring activity. 

TA implications? The market remains challenging. Hiring budgets are unlikely to increase. It’s about doing more with less – making use of AI to better understand competitor activities and for better understanding where the hearts and minds of your people are right now. What’s impacting morale, retention and productivity?