The British Retail Consortium warned on Thursday that most UK retail finance chiefs plan to reduce staff hours or freeze recruitment over the coming year, as surging employment costs and weakening consumer demand drive a sharp deterioration in sector confidence.

A BRC survey of retail chief financial officers and finance directors found that 61 per cent plan to cut staff hours or overtime, 45 per cent expect to freeze recruitment, and 55 per cent intend to reduce head office headcount. A further 42 per cent are considering cutting store-level roles.

The findings follow a year in which the sector shed 74,000 jobs, taking total retail employment to 2.76 million which represents the lowest level on record, according to the BRC. The industry has now lost more than 250,000 roles over the past five years.

Employment costs rose by £5bn in 2025, the BRC calculated, driven by increases to employer National Insurance Contributions and a higher National Living Wage. The cost of employing a full-time entry-level worker rose by 10 per cent, while the equivalent figure for part-time workers exceeded 13 per cent. A further 4.1 per cent rise in the National Living Wage is due in April.

Anxiety about labour costs has intensified since the Employment Rights Act became law in January, with the BRC survey showing 84 per cent of finance chiefs now rank labour and employment costs among their top three concerns, compared with just 21 per cent last July. Overall, 69 per cent of respondents described themselves as pessimistic or very pessimistic about the year ahead, up from 56 per cent six months ago, while three-quarters said the 2025 Budget would make it harder to invest.

Helen Dickinson, chief executive of the BRC, said: "The economy is expected to remain fragile, with weak wage growth, unemployment rising, and low consumer confidence, all pointing towards falling demand. At the same time, businesses face sharply higher costs, from rising input prices and wage bills to new burdens created by government policy."

Retailers plan to respond partly by investing in automation and productivity improvements, with 68 per cent intending to drive higher output from existing teams and 61 per cent planning investment in automation.

Dickinson warned that the detail of how the Employment Rights Act is implemented will be critical, describing it as "the biggest shake-up of employment rules in a generation." She said: "If the government fails to consider business needs on policies including guaranteed hours and union rights, they will add complexity and reduce flexibility, ultimately stripping away entry-level and part-time opportunities at precisely the moment the country needs them most."

The concerns are playing out against a weakening labour market. UK youth unemployment stands at around 16 per cent, with 730,000 under-24s out of work – an age bracket disproportionately reliant on the entry-level and part-time roles that retail has traditionally provided.

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