Recruiters are reporting the toughest conditions in the British jobs market since the Covid-19 pandemic, with no sign of employers regaining confidence to hire following Rachel Reeves’ tax-raising Budget in October.
A monthly survey by KPMG and the Recruitment & Employment Confederation, published on Monday, points to the most widespread weakening in demand for staff since August 2020, with the survey’s vacancy index falling from 42.9 in December to 41.6 in January.
Any reading below 50 means the share of recruiters reporting a weakening in the market outweighs the share reporting improving conditions.
Agencies also placed fewer people in both permanent and temporary jobs last month, with the index for temp billings falling sharply from 46.3 to 41.5, the lowest since June 2020.
REC chief executive Neil Carberry said this was weaker than the usual post-Christmas slowdown in the temp market, as many businesses were keeping investment plans on hold until the economy picked up.
The Bank of England’s decision last week to cut interest rates by 0.25 percentage points to 4.5 per cent would help, as would the government’s push to promote economic growth, Carberry said.
But he added: “An autumn of fiscal gloom, difficulty navigating significant upcoming tax rises and . . . a costly new approach to employment rights are all acting as brakes on progress.”
The KPMG/REC report is the latest in a string of surveys signalling that employers have become more reluctant to take on new staff since the chancellor in October set out a £25bn increase in employer national insurance contributions.
Reeves has defended the policy, along with a rise in the national living wage, both of which are due to take effect in April. But business leaders have warned that the increase in costs, coming on top of weak growth and growing trade tensions, will lead to cuts in headcount.”
The economic malaise has taken its toll on Sir Keir Starmer’s government, and deputy prime minister Angela Rayner said on Sunday that she could “completely understand people’s frustration”.
“We were elected on a mandate of change,” she told the BBC. “People want to see it immediately. But turning it around will take a little bit more than seven months.
“Keir has been completely open about wanting to do his best for the country. He won’t do what he thinks is popular. He wants to deliver. Nobody is a worse critic of Keir than Keir.”
So far, the slowdown in hiring does not seem to have been matched by widespread job losses for existing employees, although the picture has been clouded by the absence of reliable official data on the labour market.
Figures based on tax records suggest the number of payrolled employees has fallen only slightly since last summer. There has, meanwhile, been no significant pick-up in the redundancy notifications submitted by big employers, according to figures from late January.
Announcing the cut in interest rates last week, the BoE’s Monetary Policy Committee said that it judged the labour market to be in balance, with the rate of unemployment broadly stable over recent quarters.
This marks a return to normality, following what the BoE termed an “exceptionally tight” jobs market since the pandemic, where many employers struggled to fill posts. The central bank said that despite the clear weakening in GDP growth, companies still had only a little spare capacity.
Rate-setters saw a risk, however, that employers would cut headcount more sharply in response to higher taxes — in particular in sectors where many staff were paid at the minimum wage, making it impossible to offset the NICs increase by squeezing pay.
The KPMG/REC survey showed recruiters were reporting widespread falls in vacancies in all sectors, including low-paid areas such as hospitality that until recently had acute staff shortages.
They were also reporting far fewer healthcare roles, following a clampdown on the use of agency workers by NHS trusts. However, the sharpest falls in vacancies were in higher paid professional areas and in the tech sector, which has been suffering a long-running slump.
Recruiters have seen more candidates looking for work even as job openings dry up, leading to an easing of pay pressures.
However, the KPMG/REC survey has pointed to weaker wage growth than other measures for several months, suggesting employers are no longer willing to pay a big premium to secure a new hire, but are still facing demands from existing staff to recover ground lost during the cost of living crisis.
