The UK labour market continued to weaken at the start of 2025, with permanent staff vacancies falling at the sharpest rate since August 2020, according to the latest KPMG and REC UK Report on Jobs.
Compiled by S&P Global, it reports a decline in demand for staff, rising redundancies, and weaker pay growth.
The survey, based on responses from around 400 UK recruitment and employment consultancies, found that both permanent and temporary placements fell further in January. Businesses remained cautious about hiring due to ongoing economic uncertainty and the rising cost of employment. Temporary billings were particularly affected, declining at the fastest pace since mid-2020.
Although staff availability continued to rise, the increase was slower than in previous months. Permanent salary growth also weakened, with firms paying higher wages only for top candidates. Meanwhile, vacancy numbers fell sharply, particularly for permanent roles, extending the ongoing contraction in demand for workers.
The January survey revealed a decline in permanent placements, marking the 28th consecutive month of contraction. The pace of decline remained similar to December, when placements fell at a 16-month record rate. Recruiters reported a reluctance among employers to hire due to expected increases in employment costs. Temporary billings also saw their sharpest decline in over four and a half years, as the downturn in demand for short-term workers intensified.
Jon Holt, Group Chief Executive and UK Senior Partner at KPMG, said, “Businesses continue to hold back on recruitment, leading to permanent and temporary placements falling steeply again in January. While firms are still willing to pay for top talent, increased staff availability weighed on pay growth. This cooling may have encouraged the Bank of England’s decision to cut rates last week.”
Pay Growth Slows as Vacancies Decline
Salary inflation eased in January, with permanent pay growth remaining modest and well below historical trends. Although businesses continued to offer higher salaries for skilled candidates, the rise in available staff contributed to weaker overall pay increases. Temporary wage growth was even slower, with pay inflation at its weakest level in four months.
Job vacancies continued to decline sharply in January, with demand for permanent staff falling at the fastest rate since August 2020. The contraction has now accelerated for five consecutive months, reaching a near four-and-a-half-year peak. Temporary vacancies also fell at a steeper pace, with the sharpest decline recorded since mid-2020. Recruiters reported that uncertainty over economic conditions and the cost of employment were key factors behind the slowdown in hiring activity.
Holt added, “It is unlikely that we will see any significant improvements in the survey data over the near term, as hiring stays muted and staff availability continues to rise. Yet business leaders are ready for growth signals and gradual rate cuts could start to translate into greater confidence to plan and invest.”
Redundancies Increase as Business Confidence Stays Low
The number of available job candidates continued to rise in January, largely due to increased redundancies. Both permanent and temporary staff availability increased, but the overall rate of growth was slower than in December. Despite the rise in job seekers, businesses remained hesitant to take on new employees. Economic pressures and uncertainty over upcoming tax and policy changes were cited as reasons for the cautious hiring approach.
Neil Carberry, REC Chief Executive, said, “Businesses entered the year uncertain on the growth path, and that has driven a ‘wait and see’ approach to hiring. Around the country, REC members report that clients have plans and are hopeful for the year ahead – but firms are slowing investment until they see more momentum in the economy. Last week’s move on interest rates was timely as a way of boosting confidence.”
The steepest decline in permanent placements was recorded in the North of England, with contractions also seen in other regions. Temporary billings fell across all monitored areas except the Midlands, where a slight increase was recorded. The sharpest falls in temp placements were in the South of England and London.
Permanent staff vacancies declined across all job categories, with the Executive/Professional sector experiencing the steepest contraction, followed by Secretarial/Clerical roles. Temporary vacancies also fell in all sectors, with Executive/Professional seeing the most notable decline.
Carberry added, “The more central role of growth in Government thinking since the Chancellor’s speech last month will also help. But it takes time, and real action, to build business confidence. An autumn of fiscal gloom, difficulty navigating significant upcoming tax rises and little progress on the practicalities of a costly new approach to employment rights are all acting as brakes on progress.
“As well as the monetary stimulus to growth, it’s time for greater clarity on how the Government will use its industrial strategy to drive the growth of the whole economy.”
