The British Chambers of Commerce (BCC) Insight Unit's latest Quarterly Recruitment Outlook (QRO) reveals only a fifth (20%) of firms increased their workforce over the last three months.

This is down from 24% in Q4 2024, as business grapple with rising costs, including the national insurance hike. Meanwhile, 63% said their workforce had remained constant and 17% reported a cut in staff.

The research for Q1 was conducted before the recent Spring Statement, with fieldwork carried out between February 10 and March 10. Over 5,000 businesses from across the UK responded, 91% of whom are SMEs.

There was a fall in the number of firms attempting to recruit, 54% compared with 59% in Q4 2024. For the firms who have attempted to recruit in the last three months, 76% of respondents said they had experienced difficulties, down from 79% in the previous quarter.

Construction and engineering firms continue to struggle the most finding staff, with 83% reporting recruitment issues. Businesses in the transport and logistics sector are not far behind with 82% having difficulties. At the other end of the scale, 63% of marketing and communications firms 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 keenly in manufacturing (82%), transport and logistics (81%), hospitality (81%) and construction (80%).

The number of businesses reducing investment in staff 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.

Jane Gratton, deputy director public policy at the British Chambers of Commerce, 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.

"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.

"Continuing to loom large is the proposed employment rights legislation, which threatens to add huge extra costs and complexity for businesses. 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."