The long-running downturn in UK recruitment showed faint signs of stabilising in January, with permanent hiring falling at the slowest rate in 18 months and temporary billings returning to marginal growth.
Recruiters reported that uncertainty which dominated the end of 2025 had begun to lift, allowing some employers to move ahead with delayed plans. But demand for staff remains weak overall and vacancies continue to decline, underlining the fragile state of the labour market.
The latest labour market survey from KPMG and the Recruitment and Employment Confederation (REC), produced by financial information company S&P Global, found that permanent placements dropped again at the start of the year, extending a contraction that has now lasted more than two years. But the pace of decline eased notably, reaching its least severe level since the middle of 2024.
At the same time, billings for temporary and contract workers moved back into positive territory for the first time in three months. Recruiters said many organisations were opting for short-term staffing while they assess economic conditions.
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The modest improvement suggests some employers are beginning to move from delaying decisions to cautiously restarting recruitment. Yet overall hiring intentions remain restrained, particularly among smaller firms and in sectors facing cost pressures.
Pay pressure returns despite weaker demand
One of the clearest signals from the survey was a renewed rise in pay growth.
Starting salaries for permanent roles increased at the fastest rate in nearly a year and a half, while wages for temporary workers climbed at the joint-quickest pace since May 2024. Employers continued to lift pay to secure specialist skills that remain in short supply.
The figures suggest that while the volume of hiring is subdued, competition for particular capabilities remains intense. Accounting, engineering, information technology and healthcare were all areas where recruiters struggled to find suitable candidates.
Lisa Fernihough, head of advisory at KPMG UK, the professional services firm, said the mood among employers had improved after a difficult close to last year.
“After a difficult end to last year, it’s encouraging to start this year with tentative signs that hiring appetites are beginning to improve as chief execs respond to signs of easing uncertainty by starting to push forward with their plans,” she said.
“Skills shortages in specialist areas continue to impact the market, particularly where competition for talent remains intense. There are parts of the economy poised for investment, and as skills needs align with greater market stability, we could start to see more consistent improvement in hiring as the year progresses.”
Neil Carberry, chief executive of the REC, the professional body for the UK recruitment industry, said businesses appeared to be emerging from a prolonged period of hesitation.
“There have been increasing signs from businesses as we enter 2026 that uncertainty on hiring plans is giving way to action,” he said.
“That does not mean a general hiring upswing, but the wait-and-see period seems to be ending. Rising temp billings and a levelling off in the permanent market speak to these clearer plans. REC members across the country report a change in tone since the start of the year.”
Carberry added that companies were weighing complex decisions about automation, outsourcing and the location of new roles.
“A growing, inclusive economy requires high levels of employment — focus on encouraging firms to create jobs rather than discouraging that investment is more important than ever,” he said.
Vacancies still falling sharply
Despite the small improvement in placements and billings, the survey showed that underlying demand for labour remains weak.
Overall vacancies fell again in January, continuing a decline that has lasted more than two years. Permanent vacancies continued to drop more quickly than temporary positions.
The steepest reduction was recorded in the public sector, where hiring freezes and budget pressures have curbed recruitment. Demand for nursing and medical staff fell particularly sharply, while engineering roles showed the smallest reduction.
In temporary hiring, blue-collar positions were the only category to record any meaningful increase.
More candidates but growth slows
Candidate availability continued to rise as redundancies and limited job opportunities pushed more people into the market. However, the rate of increase eased to its slowest level for a year.
Recruiters said this reflected a mix of job cuts and caution among candidates who are less willing to change roles in an uncertain climate. Many workers appear to be holding on to existing positions rather than risk a move.
The report points to a labour market caught between caution and gradual recovery. Employers remain under pressure from costs and economic headwinds, yet are beginning to re-engage with recruitment after months of delay.
Recruiters believe the coming months will test whether January’s slight improvement develops into a steadier trend or fades back into stagnation.
