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The UK jobs market has been handed another blow as businesses ditch permanent hires as the economy battles against domestic and international uncertainty.
The latest jobs report from KPMG and REC, the professional body for recruiters, showed hiring for permanent places dropped to a reading of 44.1 in May, which sits below the neutral 50 mark indicating a contraction.
This slump marks the 44th consecutive month of decline for permanent placements, sealing the longest period of contraction since the survey began in 1997.
Jon Holt, chief executive of KPMG UK, said: “Ongoing global and domestic uncertainty is making businesses more cautious, and that is increasingly reflected in hiring decisions.
“While some employers are turning to temporary contracts to retain flexibility, many permanent hiring plans are being delayed or put on hold.”
The report comes after Chancellor Rachel Reeves was handed another jobs blow earlier this month after the OECD, the Organisation for Economic Co-operation and Development, warned the UK unemployment rate would reach as high as 5.5 per cent this year, which would be an 11-year high.
Demand for staff slumps as jobs market takes hit
The index for temporary bills jumped to 52.2, marking the strongest rate of short-term recruitment growth since April 2023. The overall demand for staff fell at its quickest pace in three months, with the total vacancies index sliding to 45.9.
Business leaders surveyed pointed to a storm of rising costs, geopolitical tensions, and regulatory shifts as the main reasons behind the hiring freeze.
Firms have been rocked by the economic shock triggered by the US-Iran war, which has fanned the flames of inflation after oil prices were sent soaring over the last few months.
Numerous firms have taken a hit as a result of the conflict in the Middle East. Barclays data earlier this year showed consumer spending dropped for the first time since 2024 amid the crunch.
Neil Carberry, chief executive of REC, said: “The clearest story in the economy right now is momentum being held up by uncertainty”.
But domestic issues were also pointed to as weighing on businesses. Carberry added businesses were “tapping the brakes” on permanent hiring due to “new employment red tape” as well as the crisis in the Gulf.
New government regulation around legal compliance rules and changes to workplace laws – such as stricter rules around zero-hours contracts – have left businesses navigating tougher roads when managing staff.
Carberry said temporary billing was helping “keep the wheels turning in challenging times” as firms used the short-term method as a route to avoid the more complex bureaucracy and maintain flexibility during uncertain times.
“Recognising this and backing our well-regulated temporary and contract workforce
should be a priority for the government, starting with big changes to the approach to zero hours rules,” he added.
