Permanent hiring slides again as firms hold back on recruitment

Permanent hiring across the UK fell again in May as employers continued to hesitate over taking on new staff, according to the latest Report on Jobs compiled by KPMG and the Recruitment and Employment Confederation.

The survey, one of the most closely followed barometers of the labour market, found that permanent placements declined while demand for temporary workers proved more resilient. Temp billings rose at their fastest rate in more than three years, suggesting firms are favouring flexible cover over longer-term commitments.

Drawn from responses across a broad panel of recruitment consultancies, the report offers an unusually timely read on hiring conditions, often picking up shifts in sentiment before they appear in official statistics. May's findings pointed firmly towards a labour market losing momentum.

Caution dominates

Recruiters reported that economic uncertainty, higher employment costs and weaker client confidence were prompting companies to pause or scale back hiring plans. The pattern chimes with wider evidence that businesses are absorbing rising wage and tax bills by holding headcount flat rather than expanding.

The increase in employer National Insurance and the higher National Living Wage introduced last year have made each new permanent hire more expensive, sharpening the incentive to delay recruitment or to meet workloads through overtime and temporary cover instead.

Several recurring themes emerged from the recruiters surveyed:

• A renewed fall in permanent placements as clients deferred decisions
• The strongest growth in temporary billings in more than three years
• A further rise in the availability of candidates as redundancies feed the pool
• Softer growth in starting salaries as hiring pressure eased
• Persistent caution driven by economic and geopolitical uncertainty

Temporary work fills the gap

The lean towards temporary staffing is often read as a sign of nervousness rather than strength, with employers reluctant to lock in permanent costs while the outlook remains clouded. It can also leave workers facing less secure, shorter-term arrangements.

For employers, temporary and contract staff offer a way to manage fluctuating workloads without committing to the costs and obligations of permanent contracts. For workers, however, the trade-off is often less stability, fewer benefits and reduced confidence to make big financial commitments such as taking on a mortgage.

“Employers are leaning on temporary staff to manage workloads while they wait for more clarity.”

— KPMG and REC, UK Report on Jobs

A cooling labour market

The growing availability of candidates, partly a consequence of redundancies in sectors such as retail, has eased the intense competition for staff seen in recent years. That, in turn, has taken some of the heat out of pay growth, with starting salaries rising more slowly than at the height of the post-pandemic hiring scramble.

“A looser labour market eventually helps bring pay pressures down, but it can also signal that demand in the wider economy is fading.”

— A labour market economist

That dynamic is double-edged. Cooler wage growth helps ease one of the inflationary pressures the Bank of England has worried about, but it also reflects a softening economy and could weigh on consumer spending if households feel less secure in their jobs.

The slowdown has not been uniform across the country or across sectors. Demand has held up better for certain skilled and specialist roles, particularly in healthcare, engineering and technology, even as more general office and retail vacancies have thinned. That patchwork suggests structural skills shortages persist beneath the surface, even as the overall market loosens.

Background

The UK labour market ran exceptionally tight in the years following the pandemic, with employers struggling to fill vacancies and pay growth running hot. That backdrop has gradually shifted as higher interest rates, weak growth and rising employment costs have cooled demand for staff. The Report on Jobs has charted that turn, with permanent hiring sliding through much of the past year.

What happens next

The findings add to a picture of a cooling jobs market, and will feed into the debate over how quickly the Bank of England can afford to support growth without reigniting inflation. A softer labour market strengthens the case for lower interest rates, but policymakers will want to be sure that pay and price pressures are genuinely easing before moving. The coming months of data will be watched closely on both counts.