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The UK jobs market ended 2025 on a weak footing, with both permanent and temporary hiring falling in December and unemployment already sitting at a four-year high.
A closely watched labour market survey by KPMG and the Recruitment and Employment Confederation (REC) shows that permanent staff placements dropped to a four-month low at the end of the year, while temporary roles also declined. Vacancies continued to fall and the availability of workers rose sharply, underlining a market that is loosening rather than rebounding.
The figures suggest that the uncertainty created by November’s Budget is still weighing heavily on employers. Confidence among businesses and households fell in the run-up to the fiscal event as firms braced for higher taxes and rising employment costs.
Separate data published by the REC last week showed that most employers do not expect a meaningful increase in hiring during 2026. Businesses remain constrained by higher payroll costs, including increases to the national living wage and the impact of lower National Insurance thresholds.
Neil Carberry, chief executive of the REC, said December’s survey pointed to a further deterioration compared with November, when the Budget was announced late in the month. While the overall pace of decline in placements was slightly less severe than earlier in the winter, permanent hiring fell at its fastest rate since August.
“Making this a better year for hiring will require a focus on rebuilding business confidence,” Carberry said. “With the Budget now behind us, firms need a clear and credible direction from government — from the industrial strategy to a more pragmatic approach to the Employment Rights Act, which is worrying many employers.”
The slowdown comes as unemployment has already reached 5.1 per cent in the final quarter of last year, the highest level in four years. Economists surveyed by The Times believe the jobless rate could rise further, potentially reaching 5.5 per cent in 2026 — a level not seen for more than a decade.
Despite the softening labour market and sluggish economic growth, most economists and traders expect the Bank of England to cut interest rates no more than twice this year. Lower borrowing costs would help ease the cost of hiring and investment, but policymakers remain cautious amid persistent inflationary pressures.
The Bank of England’s latest survey of decision-makers shows that businesses expect to reduce headcount in 2026, while wage settlements are forecast to edge down only marginally, from 3.8 per cent to 3.7 per cent.
That tension is reflected in the REC data, which showed pay for permanent staff rising at the fastest pace since May, suggesting inflationary pressure has not fully disappeared. Temporary pay also increased in December after stagnating in the previous two months, although overall wage growth remains below its long-term average.
Regionally, the Midlands was the strongest performer and the only part of England to record growth in temporary placements. Hiring continued to fall in London and across much of the north and south of England.
Meanwhile, recruitment firm Morgan McKinley reported that vacancies in London’s financial services sector fell 16 per cent in the final quarter of 2025, although overall job numbers in the sector were still up 16 per cent year on year — highlighting how uneven the labour market has become.
