Zarah ChoudharyThe UK labour market faced a significant downturn in November, as highlighted by the latest KPMG and REC UK Report on Jobs survey, compiled by S&P Global.
Based on data from a panel of 400 UK recruitment and employment consultancies, the report signalled the steepest decline in permanent placements since August 2023.
This drop was attributed to reduced vacancies and widespread uncertainty following the late October government Budget.
Many firms paused recruitment activity to reassess staffing needs, with recruitment consultants noting that businesses were evaluating the potential impact of economic pressures on performance.
The demand for staff fell at the fastest rate in over four years, marking the 13th consecutive month of declining vacancy numbers.
Permanent roles were particularly affected, with every sub-sector registering a reduction in demand.
Executive and professional roles experienced the sharpest contractions, while temporary staff vacancies also declined across most sectors, with the exception of blue-collar and hospitality roles.
Temporary staff billings saw their fifth successive decline, reflecting broader caution in the market.
Regionally, the South of England recorded the steepest drop in permanent placements, while the North of England led declines in temporary billings.
The Midlands was an exception, with a notable increase in temporary hiring activity.
Salary growth remained limited amid falling demand for workers.
Permanent salaries were little changed from October’s 44-month low, as businesses prioritised cost management.
While skilled candidates occasionally commanded higher wages, overall pay growth was constrained by increased candidate availability.
Temporary pay rates also rose modestly, with the pace of growth slower than in October.
Staff availability surged in November, with recruitment consultants reporting the steepest rise in three months for both permanent and temporary workers.
This was attributed to a growing number of redundancies, which added to the pool of available candidates.
The findings underlined the challenges faced by the UK labour market as economic uncertainties and reassessments of staffing requirements continue to impact recruitment.
Businesses across sectors were exercising caution in hiring, and with demand for staff falling and redundancies on the rise, labour market conditions are expected to remain subdued in the months ahead.
Jonathan Mansfield, employment law partner at Spencer West LLP, said: “So why are employers holding back from recruitment?
“Economic headwinds are now combined with expected tax rises and changes to employment law.
“The impact of a 2% increase in employer NI contributions for most employers from Q2 onwards is likely to make firms think twice about new hires, as an initial response.
“It will be challenging to absorb the increase in costs through productivity gains in the short term.
“There will also be a downward pressure on pay increases but pushback from employees.
“All this means that an embargo on new hires is a more straightforward response for many employers.
“Changes to employment rights from next year, notably day one unfair dismissal rights, will also impact hiring decisions.
“The cost of a mistaken hire will increase.
“This may lead to more careful recruitment processes, but these are never foolproof.
“Consultation will take place before the legislation comes into force, notably in relation to probationary periods.
“Even so, this change will have a big impact, given that the qualifying period for “normal” unfair dismissals is currently two years.
“Probationary periods are rarely more than 6 months.
“Employers are likely to be exploring other methods of hiring such as the use of contractors, in a bid both to save on NI and avoid more stringent employment protections.”
Jon Holt, group chief executive and UK senior partner KPMG, said: “Businesses are having to weigh up the prospect of increasing employee costs following the Budget, which has led to an accelerated slowdown in hiring activity across the board.
“While the data was already heading in that direction, permanent placements saw their steepest reductions in over a year last month, and temporary roles also saw a fifth consecutive decline.
“This slowdown, alongside a growing availability of candidates in the market could put more downward pressure on wage inflation, which remained largely unchanged on last month’s 44-month low.
“This trend will be encouraging for the Bank’s monetary policy committee ahead of the next meeting later this month, although it may not be enough to counter wider inflationary pressures we are seeing in the economy.
“However, the prospect of further rate cuts through 2025, alongside the Government’s investment plans, both point to improved growth in the near term.
“This should give businesses greater confidence which may help stabilise the labour market.”
Neil Carberry, chief executive at REC, said: “It should be a surprise to no-one that firms took the time to re-assess their hiring needs in November after a tough Budget for employers.
“The drop in vacancies was led by private sector permanent roles, and slower permanent recruitment billings across the month also reflected this trend.
“The real question now is whether businesses will return to the market as they go into next year with greater certainty about the path ahead.
“The resilience of temporary recruitment offers some hope – private sector temporary hiring activity was almost flat across the country, by comparison with the drop in permanent hiring, and there was growth in some regions.
“Firms are likely to rest more on temps while they manage the current uncertainty, and that only serves to emphasise again the value of flexible forms of work to companies and people who need to find work quickly after redundancy.
“For policymakers, ensuring new regulations support rather than weaken our flexible jobs market is vital – especially after the Budget.
“Ensuring rules introduced by the Employment Rights Bill are tailored to protect agency and temporary work really matters for people.”
