Companies are putting the brakes on hiring new staff amid a “subdued” economic outlook and rising wage bills, according to the latest business surveys.
In signs of a weakening UK labour market, the consultancy KPMG and the trade body the Recruitment and Employment Confederation (REC) said a marked decline in the number of people being placed in permanent and temporary roles continued in February, although hiring declined at a slower pace than in January.
It came as a separate survey showed that unemployment was rising, as businesses prepared for a rise in labour costs in April, dragging the employment index from the business advisory and accountancy firm BDO down to levels not seen since the wake of the global financial crisis. Business optimism fell for the fifth time in a row.
The monthly jobs report from KPMG and the REC highlighted firms’ weaker demand for workers, as overall vacancies dropped further in February.
More workers have lost their jobs, increasing the number of jobseekers and keeping a lid on overall pay pressures, the report found. Starting salaries rose at their weakest pace in four years.
The chancellor Rachel Reeves’s planned £25bn increase in employers’ national insurance contributions and 6.7% rise in the minimum wage will take effect from April.
Neil Carberry, the REC’s chief executive, said: “After a long winter, there are some hints of a turn in the labour market as we head into spring. This is led by the private sector – despite recent tax rises – and that shouldn’t be missed.”
Carberry called on Reeves to build confidence in the UK’s economic growth when she makes her spring statement to parliament on 26 March.
“At the moment, though, things are still slow as companies hold their breath in the face of significant cost rises from April with changes to national insurance and the national living wage,” Carberry said.
Business leaders had previously warned that Reeves’s autumn budget had added to the economic headwinds, arguing that the £25bn increase in employer national insurance contributions would force them to cut jobs or raise prices.
Jon Holt, the group chief executive and UK senior partner at KPMG, said many companies continued to have a “wait and see approach to hiring”.
He added that the softer decline in recruitment seen in February “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”.
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BDO said the last time businesses reported feeling a similar lack of confidence was in January 2021, when they were battling Covid lockdowns.
UK business output fell for the second consecutive month in February, BDO’s monthly business trends report found, which it said signalled a slowdown in overall economic activity in the UK despite the resilience of the services sector.
Unseasonably warm weather in February and the continued shift in consumer spending from goods to services noted since the pandemic are two possible reasons for the relative strength of the services sector.
However, BDO said the overall slowdown in UK economic activity is expected to persist for the rest of the year.
