UK Labour Market Holds Strong Despite Slower Pay Growth

Pressure to Return to the Office Is Driving Resentment Among UK Workers As flexible working continues to define the future of employment, new findings suggest the UK may be facing a growing disconnect between employer expectations and employee preferences. According to people2people UK’s 2025 Market Report, more than half of workers feel increasing pressure to spend additional time in the office, a shift that is impacting engagement and retention across multiple sectors. Liz Jones, Recruitment Director at people2people UK, says that rigid workplace policies are now a leading contributor to candidate reluctance and employee churn. "Our data shows that 54 percent of UK employees feel pushed to return to the office more than they want to," she explains. "This pressure is not just inconvenient. It is reshaping how people view their current roles and future opportunities." Where the Pressure Comes From The 2025 Market Report found that much of the drive to return to the office stems from top leadership, with executive teams leading the call for more on-site presence. This push is not always aligned with performance metrics or employee feedback. "This is not about output or productivity," says Jones. "It is about outdated assumptions. Leadership often equates visibility with value, but that mindset is increasingly out of step with how modern teams work best." The mismatch between executive expectations and employee needs is contributing to declining morale, particularly in office-based roles that could easily operate on a hybrid basis. Flexibility Still Matters Despite the push to increase office attendance, flexibility remains a top priority for candidates and employees. The Market Report confirms that roles offering flexible working continue to receive more applications, fill faster, and maintain lower turnover rates. "Flexibility is not a temporary trend," Jones adds. "It is now a standard part of what professionals expect. Candidates are telling us clearly that how they work matters just as much as where or for whom." The data reveals that teams which embrace flexible models tend to report stronger engagement, better collaboration, and improved retention outcomes, especially in sectors such as tech, finance, and professional services. What Employers Should Do To stay competitive, Jones advises that employers need to reevaluate their return-to-office strategies with both data and empathy in mind. people2people UK recommends: Involving employees in setting attendance expectations Tailoring policies by role, function, and team needs Communicating the reasons for on-site requirements clearly and consistently Measuring the impact of attendance policies on productivity and engagement "One-size-fits-all approaches no longer work," Jones notes. "Companies that listen to their teams and create flexibility within structure will outperform those that rely on top-down mandates." Looking Ahead As the labour market continues to evolve, the ability to offer meaningful flexibility will be a deciding factor in who attracts and retains top talent. The 2025 UK Market Report shows a strong correlation between adaptive working policies and long-term business resilience. "Employers have a choice," Jones concludes. "They can lead with trust and flexibility, or risk losing great people to those who do."

Candidate availability in the UK labour market has increased at the fastest rate since December 2020. Our 2025 people2people UK Market Report highlights the same trend that has been flagged, with the volume of candidates rising sharply due to redundancies and subdued hiring activity. Market Supply Meets Reduced Demand Liz Jones at people2people UK notes that the shift represents a clear imbalance. "Candidate supply is surging as job openings contract," she commented, in line with findings from our 2025 market report. "More people are actively looking but there are fewer roles available. This impacts how recruiters and HR managers plan talent attraction and engagement strategies." Salary Impact and Recruitment Strategy The increase in candidate availability has also influenced pay trends. Salary growth has remained modest due to reduced hiring budgets and greater competition for fewer active roles. "With more talent available and slower demand from employers, organisations are better positioned to be selective," Liz shared from our analysis. "This is a chance to focus on quality of hire rather than speed of hire." What This Means for Employers In a market with rising candidate supply and fewer opportunities, jobseekers become more discerning. They are assessing potential employers based on culture, flexibility, development opportunities, and brand values. Liz Jones advises that businesses should: Clearly articulate what makes them stand out to candidates Review their employer value proposition against market expectations Consider investing in candidate experience platforms and employer branding Maintain recruitment agility so they can swiftly fill roles when market conditions improve Preparing for Market Recovery Our 2025 report shows that while hiring activity remains subdued, there are early signs of resilience in sectors such as engineering, logistics and healthcare. "This market may feel cautious," Liz explains, "but there are pockets of opportunity. Organisations that maintain readiness will be first to tap into recovering sectors and talent pools."

Flexible working is no longer a perk. It is a priority. Our people2people 2025 Market Report confirms that a lack of flexibility is pushing a significant portion of the workforce to look elsewhere. Employers who fail to adapt are already seeing the consequences. According to our research, more than one million people in the UK left their jobs in the last 12 months due to rigid working conditions. That is nearly three percent of the workforce walking out of roles that did not meet their expectations for flexibility. This shift is not limited to remote working. It also includes flexible hours, part-time arrangements and compressed working weeks. Employees are looking for control over when and how they work. A Disconnect Between Policy and Preference While flexible work continues to rank high on the list of job seeker priorities, our data shows that more than half of employers have increased expectations for in office attendance in 2025. This rise is driven primarily by leadership mandates rather than operational need. "There is a growing disconnect between leadership expectations and employee preferences," I said while reviewing our report findings. "The result is avoidable turnover and a widening talent gap in key sectors." This trend is most visible in professional services, finance and tech roles where hybrid work is both possible and preferred. Employers insisting on a return to pre 2020 working patterns are facing greater difficulty attracting and retaining skilled candidates. Flexibility Strengthens Recruitment Outcomes The business case for flexibility is clear. Our report found that job adverts which include flexible options receive up to 40 percent more applications and fill faster. These roles also report lower early-stage attrition, suggesting a better match between employer and candidate expectations. "Flexibility improves both the volume and quality of applicants," Liz Jones noted. "It gives companies an edge in a market where top talent has choices." Candidates now assess flexibility before they consider salary, commute or even job title. Those who have experienced hybrid or remote work environments are unlikely to go back to rigid models without significant trade offs. What Employers Can Do Now The solution is not a one-size-fits-all model. Instead, companies should aim to provide structure around flexibility that meets both business and employee needs. Based on our research, I recommend: Making flexibility a default part of job design and recruitment messaging Offering a mix of remote, hybrid and flexible hour options depending on role Providing training for managers to lead distributed teams effectively Tracking turnover data linked to flexible work policies to spot early warning signs The expectations of the workforce have changed. Flexibility is now a deciding factor for candidates and a retention tool for current employees. Firms that ignore these expectations will continue to lose talent. Those that embrace structured flexibility will gain a clear advantage in attraction, engagement and long-term workforce planning.

What’s Holding HR Back from Formal AI Adoption? AI use in HR is increasing across the UK. In 2025, 66% of professionals said they have used tools like ChatGPT to write policies, generate job descriptions or support internal communications. Despite this, only 3.6% of HR departments have formally integrated AI into their systems and processes. This informal use may seem practical, but it highlights a growing divide between experimentation and long-term strategy. Without formal adoption, organisations risk falling behind in areas like recruitment efficiency, data governance and candidate experience. A Lack of Time and Resources The most common reason HR professionals give for delaying AI adoption is a lack of time. Many teams are already stretched with administrative responsibilities and see AI integration as a project that requires more capacity than they currently have. Liz Jones, Recruitment Director at people2people UK, says the concern is valid but short-sighted. “We see time cited as the biggest barrier,” says Jones. “But formalising AI use actually saves time long-term. The our people2people 2025 UK Employment Trends Report shows that teams using integrated AI tools reduce administrative workload by up to 23 percent. That’s a significant gain for any HR function.” Skills and Confidence Gaps A second challenge is the skills gap. Many HR teams are unsure how to assess AI tools or ensure they are being used fairly and effectively. Without training, professionals are left guessing whether the tools they are using are making sound decisions. “Confidence is a real issue,” Jones adds. “According to our report, fewer than one in three HR professionals feel confident evaluating AI outputs. That means the majority are using tools without fully understanding how they work, or how to manage bias and risk.” This gap can create inconsistency across hiring, performance reviews and internal policies. It also limits HR’s ability to lead digital transformation initiatives. The Policy Disconnect Only a third of UK organisations have formal policies in place to manage AI use in HR. This lack of structure exposes companies to legal and ethical risk. As AI becomes more embedded in decision-making processes, clear policies will be essential. “Our report found that organisations with AI policies in place saw higher levels of trust from both employees and candidates,” says Jones. “Without those guardrails, even well-meaning use can go wrong. Formal guidance protects both the business and its people.” Recruitment Implications AI is already transforming recruitment, from automating CV screening to helping personalise outreach. But without structure and oversight, these tools can reinforce bias and exclude strong candidates. This is especially important as the UK faces a downturn in graduate hiring. According to People Management, graduate openings have dropped to their lowest level in seven years, with AI partially to blame. “Hiring fewer entry-level roles does not mean less work,” says Jones. “It means that teams need to be smarter with how they assess and engage candidates. Formal AI adoption helps ensure that recruitment remains inclusive, consistent and aligned with business goals.” Moving Forward Formal adoption of AI does not need to be complex. The key is to start with simple, structured steps such as: Using HR platforms that include integrated AI tools Creating internal guidelines to support ethical and consistent use Providing training in AI literacy and bias awareness Reviewing AI-supported decisions with human oversight  The tools are already being used. The question is whether HR teams will take the lead in making their use strategic, secure and fair. Those that do will be better placed to support their people, meet compliance expectations and stay competitive in a changing labour market.