UK retailers are preparing to freeze recruitment and cut staff hours as rising labour costs place growing pressure on the sector, according to new research from the British Retail Consortium (BRC).
A survey of retail chief financial officers shows employment costs have become one of the most significant business risks facing the UK retail industry in 2026.
The findings underline mounting concern over the impact of higher National Insurance contributions, increases to the National Living Wage and new regulatory obligations under the Employment Rights Act.
Employment costs climb to top business risk
The BRC survey found that 84% of retail finance leaders now rank labour and employment costs among their top three concerns, compared with just 21% in mid-2025.
Retailers faced an estimated £5 billion increase in employment costs during 2025. This rise was driven largely by higher employer National Insurance contributions and statutory wage increases.
The cost of employing a full-time entry-level worker rose by around 10%, while part-time roles saw increases of more than 13%.
Helen Dickinson, Chief Executive of the BRC, said the sector is under strain from “a combination of higher wage costs and increased regulatory burden”, warning that confidence has weakened as a result.
The survey also found that 69% of respondents described themselves as pessimistic about the year ahead, up from 56% six months earlier.
Hiring freeze and workforce reductions expected
Faced with sustained cost pressures, many retailers are adjusting workforce plans. Around 61% of finance leaders said they expect to reduce staff hours or overtime, while nearly half indicated they plan to implement a hiring freeze.
More than half anticipate cutting head office roles, and 42% expect reductions in store headcount.
Retail is the UK’s largest private-sector employer. Despite this, the sector has lost approximately 74,000 jobs over the past year and more than 250,000 over the last five years.
Dickinson said that while retailers remain committed to supporting jobs and investment, “the cumulative impact of higher employment costs risks limiting opportunities, particularly entry-level roles.”
Impact of employment rights and economic slowdown
The Employment Rights Act, introduced in January, is also shaping business sentiment. Provisions affecting flexible working and guaranteed hours are seen by some retailers as increasing administrative complexity and long-term labour liabilities.
The BRC survey indicates that weak consumer demand and wider economic uncertainty are compounding these challenges. Retailers report that falling confidence and squeezed household budgets are restricting revenue growth at a time when operating costs continue to rise.
For international retail analysts and supply chain partners, the data signals a shift in workforce strategy within the UK retail market. Hiring freezes, reduced hours and greater focus on productivity measures are emerging as immediate responses to sustained labour cost inflation.
The findings highlight how rising employment costs are reshaping labour planning across UK retail, with potential long-term implications for job creation, investment and sector competitiveness.
