Recruitment business owners are no strangers to change, but 2025 is presenting a particularly complex picture. While the economic situation in the UK showed some resilience early in the year, deeper structural issues and global uncertainty are testing the agility of even the most experienced recruitment leaders.
At the recent APSCo FD Forum, Giles Andrews from Santander shared a detailed economic analysis that cuts through the noise. In this blog, we unpack the key themes of the UK economic outlook and explore what they mean for recruitment agencies that want to grow, protect profitability, and stay strategically sharp.
Economic Growth: Temporary Boost, Long-Term Caution
The UK economy grew by 0.7% in Q1 2025: the strongest quarter in almost a year. While that headline might sound encouraging, a closer look reveals that this was driven largely by front-loaded business investment, including one-off aircraft purchases and an export push ahead of potential tariffs. It’s not a sign of a broad-based recovery for the UK economic situation.
British economy forecasts from both the Bank of England (BoE) and HM Treasury (HMT) suggest that growth will remain subdued for the rest of the year. With GDP expected to land between 0.8% and 1.1%, it’s clear that this isn’t a period for unchecked optimism.
For recruitment businesses, this means preparing for what we call a “stop-start” market—short bursts of client activity, followed by periods of hesitation or contraction. Strategic planning needs to remain flexible, as overcommitting to headcount or fixed costs could leave firms exposed if demand falters.
Inflation: The Bumpy Road Isn’t Over
Just as inflation seemed to be coming under control, April 2025 brought a sharp spike — from 2.6% to 3.5%. This increase was driven by regulated price hikes and a rebound in services inflation, now running above the Bank of England’s own projections for the UK economy forecast.
Inflation is expected to remain elevated through Q3 before beginning to ease. In practical terms, this affects both candidates and recruitment businesses.
Candidates will demand higher salaries to keep pace with the cost of living, which can drive wage inflation across client organisations. Recruiters, too, face rising costs—from software and subscriptions to utilities and salaries.
Now is the time to review your fee structures. Are you charging appropriately for the value you deliver? If not, it’s time to reposition and reinforce your commercial proposition in line with the future of the UK economy.
Labour Market Dynamics: Still Tight, Still Tricky
Despite falling job vacancy numbers, the UK labour market remains tight in relation to the UK economic forecast. Wage growth is still hovering around 6%, although it has started to moderate slightly.
Interestingly, we’re now seeing three consecutive months of declines in payroll employment. This suggests businesses are beginning to push back on rising employment costs.
The UK also continues to lag other developed economies in terms of labour force recovery. Inactivity levels remain high, which contributes to recruitment difficulties across multiple sectors.
For recruitment firms, this translates into ongoing candidate shortages, longer fill times, and even more pressure to demonstrate value in sourcing and selection. Retention, both internal and client-side, becomes a major priority.
Trade and External Pressures: A Balancing Act
On the global stage, the UK maintained a healthy trade surplus with the US in 2023—around £70bn, mostly driven by services. Recent adjustments to tariffs on steel, aluminium, and cars have been positive for exporters.
However, geopolitical uncertainty remains a major factor in the UK economic outlook. Rising global tensions, economic nationalism, and shifting supply chains mean that UK-based clients with overseas exposure may adopt a more cautious stance in their growth plans.
Recruitment firms working with clients in manufacturing, engineering, or export-driven sectors need to keep a close eye on international developments and support clients with workforce planning that can flex across borders.
Interest Rates: Some Relief, But Not Rapid
A significant moment in the current economic climate in the UK is that the Bank of England cut interest rates to 4.25% in May. While this offers some short-term relief, particularly for businesses carrying debt, the central bank made it clear that future cuts will be gradual. A likely path is one 25-basis-point cut per quarter, potentially bringing the rate down to 3.75% by year-end.
The Bank of England remains uncertain about whether current economic challenges are supply- or demand-driven, or both. As a result, monetary policy will remain cautious.
For recruitment firms, the practical impact of the UK economic situation is modest. Borrowing may become slightly cheaper, but don’t expect a boom in investment-driven hiring. Growth will likely remain focused on backfilling, critical hires, and maintaining operational capability.
Navigating Risk: Five Trends to Watch
Giles Andrews flagged five specific risks that every recruitment leader should have on their radar:
- Geopolitical volatility – Conflicts and cyber threats can disrupt markets overnight.
- Structural challenges – Low productivity and rising public debt could dampen long-term growth.
- Climate policy delays – An uncoordinated shift to net-zero could destabilise certain sectors.
- Inflation shocks – Energy or food price spikes can quickly reverse monetary policy progress.
- Prolonged stagnation – If inflation persists, interest rates may remain high, choking growth.
Scenario planning and financial modelling aren’t just for your clients—they’re essential tools for your own agency, too. Build resilience into your model before the next shock arrives for the UK’s future economy.
What Can Recruitment Leaders Do Now?
Despite the mixed signals coming from the UK economic outlook, there are concrete steps recruitment business owners can take to position themselves strongly:
- Reassess your cash flow forecasts. Include margin pressure, staff cost inflation, and realistic revenue expectations.
- Refine your pricing strategy. Don’t be afraid to revisit your fee structures. Inflation affects you too.
- Sharpen your value narrative. Equip your consultants to have more strategic, insight-led conversations with clients.
- Track performance metrics that matter. Focus on Net Fee Income (NFI) per consultant, conversion ratios, and margin by client.
- Support your team. In a high-pressure environment, retaining top performers and preventing burnout is more profitable than recruitment churn.
What Should Your Recruitment Agency Do?
The UK economy is in flux, but that doesn’t mean your recruitment agency needs to be on the back foot. With intelligent financial planning, proactive client engagement, and a flexible business model, it’s entirely possible to thrive through uncertainty.
At Recruitment Accountants, our team works with over 100 ambitious agencies across the UK. We help recruitment leaders understand the numbers behind their decisions and unlock performance through tailored financial advice that takes the UK economic outlook into account.
Want to stress-test your agency’s financial strategy for the year ahead? Book a call with our Recruitment Accountants team today and let’s explore how we can help you prosper through 2025 and beyond.
