Recruitment Challenging As New Employment Law Lands

Nearly three quarters of firms (71%) say they experienced hiring difficulties in Q1 of 2026, according to the latest data from the British Chambers of Commerce (BCC).

The research, published as the first elements of the Employment Rights Act come into effect, shows just 29% of businesses reporting no recruitment problems.

The BCC’s Quarterly Recruitment Outlook indicates hiring problems are most significant in transport and construction, with 82% and 81% of responding firms experiencing issues. Retailers were the least likely to have experienced problems, with 60% reporting issues.

The research was carried out between 9 February and 9 March, before the spiralling impact of the Middle East conflict was fully apparent. More than 4,560 businesses across the UK (91% of whom are SMEs) took part.

Labour costs were still the biggest cost pressure for businesses, cited by 73% of responding firms (the same level as Q4). This was highest in the hospitality sector, where 85% of firms say labour is a cost pressure. While in transport and logistics the figure is 84% and in manufacturing it is 78%.

According to the data, over a quarter (27%) of firms expect to increase the size of their workforce over the next 12 months (23% in Q4 2025). The majority (63%) of businesses say they expect no change in their staffing levels, while 10% expect to cut the size of their workforce.

As SMEs continue to face cost challenges, investment in staff training remains low. Most businesses (58%) reported that their investment in workforce development remained unchanged over the past three months (57% in Q4). Only 23% said they increased training investment in Q1, while 19% made cuts.

Patrick Milnes, Head of Policy: People and Work, at the British Chambers of Commerce said:

“Firms of all shapes and sizes are continuing to face a challenging and costly labour market.

“Our latest data shows hiring difficulties persist, as firms across all sectors struggle to find the right people and skills they need. Even before the Iran War, this was having a huge impact on economic growth.

“At the same time, the Employment Rights Act is beginning to take effect, adding further burdens for firms that continue to be underestimated.

“Ministers need to work in partnership with business to tackle the ongoing skills crisis and improve productivity.

“Next month’s King’s Speech is an opportunity for the government to back SMEs by outlining plans to cut business costs, support employers and provide a compelling blueprint for economic growth.”

Read more latest news from the BCC here.

08.04.2026