Let’s continue our review of the UK Labour Market and its impact on SMEs.

Lately, an OECD report has been published and it doesn’t show much clemency to the UK. Nevertheless, a report doesn’t tell the full story so let’s break it down!

The first news is not as good as one may hope. As of February 2025, in fact, unemployment has surged to 4.4%, affecting 1.56 million people—an increase of about 210,000 in a short span.

Job vacancies are falling as businesses remain cautious amid economic headwinds. The tech sector, once booming, now faces a global correction, and investor uncertainty over the Bank of England’s potential March rate cut adds further complexity.

Nevertheless, the UK Government is moving swiftly to ensure that UK Innovation remains cutting-edge.

Hospitality and niche tech still offer opportunities, but resilient sectors like automotive manufacturing remain an exception. Overall, recovery has remained uneven but it is happening. It may not be at the rate we had hoped for, but it will take time. The changes from one government to another are quite radical, and such radical changes take time to bear fruit.

Nevertheless, let’s look at what this means for SMEs, shall we?

Impact on UK SMEs

UK SMEs face both opportunities and challenges. Rising unemployment enlarges the talent pool, helping small businesses attract skilled workers without fierce salary competition.

However, fewer vacancies and a potential drop in consumer spending can limit SME growth—especially for those in retail, hospitality, and non-essential services.

Increased wage costs may squeeze margins, though SMEs in AI, green energy, and healthcare could find new hiring opportunities.

A Tougher Road for Graduates

Another important issue is graduates’ employability. Putting aside my scepticism, as an academic with a decade of post-PhD research experience, I have witnessed numerous brilliant minds relegated to working for B&Q or Amazon, squandering years of exceptional education and talent.

This is largely due to universities’ minimal efforts to enhance employability and foster genuine collaboration with companies, rather than mere token initiatives. Consequently, we now face a growing number of young, brilliant minds who may struggle more than ever before.

Nevertheless, graduate opportunities have shrunk, with openings falling by 30.2% in 2024.

January 2025 data shows a modest 7.2% rise in postings in sectors like AI and healthcare. Given the fierce competition, graduates must upskill.

What does this mean for SMEs? Offer internships, apprenticeships, and entry-level roles, while government-backed training can bridge the skills gap.

Use the funding available for upskilling and get them on board. They have brilliant ideas, they were born digital and they love nomadic working. Get them onboard!

The “Back to Work” Plan

The government’s “Back to Work” plan targets increased employment for disabled individuals and those with long-term health conditions. The DWP is deploying 1,000 work coaches to help place 1 million disabled people in jobs by 2027.

Critics warn that benefit cuts may disproportionately affect vulnerable groups, and inconsistent uptake of programmes like Access to Work could undermine progress.

What is our suggestion for SMEs? SMEs can benefit from a more diverse workforce and financial incentives for inclusive hiring if they implement the right support systems.

The more diverse a team, the better they will work, seeing different perspectives. there is funding. Get in touch if you want to explore it! More than happy to!

Looking Ahead: Building a Resilient Labour Market

The labour market must adapt. We’ve said it so many times that I’ve lost track. This is the only way forward.

There are ways to grow, improve, and innovate without inventing anything new, simply by becoming inventive.

Traditional sectors stagnate, but growth industries, such as AI, green energy, and healthcare, offer fresh opportunities. Expanding apprenticeships, forging partnerships between educational institutions and industry, and targeted financial incentives are crucial.

By investing in upskilling and local training collaborations, SMEs can secure a pipeline of skilled workers.

There’s no need to reinvent the wheel. Collaborating with these emerging industries by embedding practices, forming partnerships, or simply creating alliances can drive progress.

The UK’s labour market is at an inflexion point. Bold, visionary policies are needed to address falling graduate opportunities, support disabled workers, and boost regional resilience.

Through innovative thinking and innovative strategies, SMEs can make the best of this situation. In fact, SMEs can turn these challenges into long-term opportunities. Will decision-makers and businesses rise to the occasion?

Hopefully so! And we are here to help (read further)!

Traditional sectors may stagnate, but growth industries such as AI, green energy, and healthcare offer fresh opportunities.

Expanding apprenticeships, forging partnerships between educational institutions and industry, and providing targeted financial incentives are crucial. By investing in upskilling and local training collaborations, SMEs can secure a pipeline of skilled workers.

There’s no need to reinvent the wheel. Collaborating with these emerging industries by embedding practices, forming partnerships, or simply creating alliances can drive progress.

To support this transformation, make the most of our Innovation + Strategy micro-course and its comprehensive bundle. We designed these courses to equip SMEs with the tools and knowledge to navigate the evolving labour market, foster innovation, and build strategic partnerships.

By enrolling in this course, SMEs can gain insights into effective hiring practices, workforce training, and collaboration with growth industries.

Let’s seize these opportunities and build a resilient, adaptable labour market together. NorthStar Consulting specialises in helping SMEs grow through data-driven analytics and insights.

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