UK firms are reluctant to hire due to subdued growth prospects and rising labour costs, two new studies show.
UK vacancies continued to decline in February as businesses paused or slowed their hiring plans due to a subdued economic outlook and rising payroll costs.
According to KPMG and REC’s latest job market survey, the number of vacancies fell for the sixteenth month running in February.
The report, compiled by S&P Global after surveying around 400 UK recruitment and employment consultancies, showed that permanent vacancies continued to decline at a slightly sharper pace than temporary roles.
Permanent staff appointments fell for the twenty-ninth month in a row, yet the latest drop in placements was the softest since last October.
“While it is still a wait and see approach to hiring, with February data showing companies continue to hold back on recruitment, the softer decline could be an indication that expectations of further interest rate cuts and better-than-expected recent economic data are starting to release some of the pressures on business,” Jon Holt, Group Chief Executive and UK Senior Partner KPMG, said.
According to the report, vacancies declined the most in permanent positions in secretarial and clerical jobs, followed by executive/professional and retail sectors.
Temporary staff openings were also greatly reduced in executive/professional roles, followed by retail and IT & computing. Blue collar positions recorded the softest drop in temporary vacancies.
Starting salaries rising slowly
While vacancies dropped, redundancies further increased the number of unemployed individuals.
February data indicated that the number of candidates searching for both permanent and temporary roles is increasing fast.
Slowing employer demand coupled with an increased number of job seekers kept a lid on overall pay pressures.
As a result, starting salaries rose at the weakest pace in four years and dipped below average. Pay growth in temporary jobs remained marginal.
Unemployment expected to inch higher
According to the latest data from ONS, the UK unemployment rate was 4.4% between October and December 2024.
However, redundancies are expected to rise further due to a hike in employers’ National Insurance contributions and a 6.7% rise in the minimum wage.
“Enabling companies to grow is at the heart of our prosperity – the Chancellor must use the Spring Statement to build their confidence in growth,” Neil Carberry, REC Chief Executive, said.
“At the moment, though, things are still slow as companies hold their breath in the face of significant costs rises from April with changes to National Insurance and the National Living Wage,” he added.
In a separate report, an index from advisory firm BDO showed the business climate is in a state last seen in the aftermath of the Global Financial Crisis (94.30 from 94.72).
Due to persistent inflation, weak business sentiment and subdued economic activity, BDO expects the downward trend to persist throughout 2025.
That’s despite the fact that the Bank of England lowered the key interest rate to 4.5% in February to boost economic growth further.
“Business growth is happening, but it is in a fragile state,”Kaley Crossthwaite, Partner at BDO, said.
“Cutting interest rates to 4.5% is a step in the right direction, but we know these cuts can take over 18 months to fully impact the economy. Businesses will need continued support in the meantime to address workplace challenges and fully reach their growth potential,” she added.
