Businesses are continuing to hold back recruitment as confidence over the state of the economy remains weak, newly released figures show.

The KPMG/Recruitment and Employment Confederation report on jobs survey for January 2025 showed that the fall in permanent hiring extended the current period of contraction to 28 months. Despite a modest improvement from December’s 16-month record, the pace of decline remained largely unchanged.

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The decline in the demand for workers also led to a noticeable decrease in temporary billings, which fell at the fastest pace in more than four years. The pace of this contraction had accelerated since the end of 2024, further emphasising the uncertain business climate.

While salary growth for permanent staff softened in January, it remained relatively slow compared with inflation rates that have persisted since March 2021.

Although some firms continued to offer higher starting salaries to attract good-quality candidates, the increased availability of workers exerted downward pressure on pay growth. Similarly, the growth in temporary pay rates slowed significantly, with inflation levels hitting their weakest point in a four-month period.

The overall demand for staff continued to decline throughout January, with vacancies dropping at the sharpest rate since August 2020. Permanent job vacancies were hit particularly hard, with the rate of decline increasing for the fifth consecutive month, reaching a peak not seen in nearly four and a half years. Temporary staff demand also fell, marking the sharpest contraction since June 2020.

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” – Jon Holt, KPMG

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.

“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.”

As redundancies increased across many industries due to the challenging market conditions, both permanent and temporary staff availability grew. However, the rate of growth in staff availability slowed from December, reaching its lowest point in nearly a year.

Permanent staff vacancies decreased across all job categories, with the steepest drop recorded in executive and professional roles, followed by secretarial and clerical positions. Permanent staff availability continued its upward trend, which had been ongoing for nearly two years, although the rate of growth weakened since December.

The Midlands saw the most significant increase in permanent staff availability, while the North and South of England experienced slower growth rates. A slight increase in permanent starting salaries was recorded in January, extending a trend that had been ongoing since March 2021. However, the rate of salary inflation remained modest, with market conditions and the availability of candidates limiting any significant rise in pay.

Last week’s move on interest rates was timely as a way of boosting confidence” – Neil Carberry, REC

Temp pay rates also rose slightly, marking their fourth consecutive month of growth. However, the increase was minimal, with limited market demand and high candidate availability keeping inflation in check. The South of England saw a drop in temp pay rates, while the Midlands experienced accelerated growth.

Neil Carberry, chief executive of the REC, said the gloom of autumn 2024 was still affecting business decision-making. He said: “Last week’s move on interest rates was timely as a way of boosting confidence. 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.”

 

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