Downturn in hiring across the capital deepens in January

The latest KPMG and REC, UK Report on Jobs signalled faster reductions in both permanent placements and temporary billings in the capital at the start of 2025.

Recruiters indicated that the current economic environment and recent changes in government policies, especially with the Chancellor Rachel Reeve’s tax hikes have impacted recruitment activity among businesses in London.

Furthermore, redundancies in the capital contributed to increases in the availability of both permanent and temporary workers.

Permanent starting salaries and temporary wages both saw only modest upticks in January, with rates of inflation easing from December.

The KPMG and REC, UK Report on Jobs: London is compiled by S&P Global from responses to questionnaires sent to around 100 recruitment and employment consultancies in London.

Anna Purchas, London Office Senior Partner at KPMG UK, said: “It’s been a challenging start to the year for recruitment in London, with January seeing both permanent and temporary appointments continuing to fall, albeit the former at a softer rate than the rest of the UK.

“We’re seeing fewer permanent and temporary jobs advertised and the pool of available candidates continuing to grow, although the speed at which the candidate pool for permanent roles is growing eased this month.

“As businesses’ growth plans for the year ahead crystalise, stimulated by reducing interest rates, this, and cooling pay pressures in the capital, should encourage more firms back to recruitment with more confidence.”

Downturn in permanent placements deepens

Recruiters based in the capital recorded a sharp decline in permanent placements in January, thereby stretching the current run of decrease to six months. The rate of contraction was more pronounced than seen in December with firms pointing to declining vacancies and economic uncertainty.

That said, of the four monitored English regions, London recorded the slowest reduction in new permanent staff joiners. Meanwhile, the North of England posted the strongest decline.

A marked and accelerated decline in temp billings across London was recorded in January. The respective seasonally adjusted index has now posted in contraction territory for 13 straight months. The rate of contraction was the strongest since February of last year.

Among the four English regions being monitored, the decline in temporary billings in the South of England was the only one that exceeded the contraction observed in London. Meanwhile, the Midlands was once again the only area to report an increase, although the rate of growth slowed to a near standstill.

Recruiters in London recorded a sixth consecutive monthly decline in permanent vacancies in January. The rate of decrease was sharp and the fastest since October 2020.

For the third consecutive month, the decline in permanent job vacancies was widespread across all four monitored regions in England.

Demand for temporary workers also deteriorated at a more pronounced rate in January. The fifth consecutive monthly fall in temp vacancies was rapid and the strongest in over four-and-a-half years.

In fact, quicker rates of reductions were recorded for all the four monitored English regions.

Supply of permanent candidates expands at slightly softer pace

Permanent staff supply across the capital has risen on a monthly basis since December 2022, with January marking another sharp expansion. Redundancies and economic uncertainty underpinned the latest uptick.

The rate of expansion slowed to an 11-month low, however, and was weaker than the UK-wide average.

January data revealed a marked rise in temporary candidates available across the capital. The rate of growth crept up for a second month running to the fastest since October last year. According to anecdotal evidence, full-time staff looking for supplementary work, as well as more contractors coming available, were reasons cited for the latest increase.

London and the North of England were the only English areas of the four monitored to record quicker expansions in temporary staff supply, with the latter noting the strongest growth.

Starting salary inflation moderates notably

The rate of permanent starting salary inflation in the capital eased from December’s five-month peak, indicating only a modest monthly increase. In fact, the most recent rise was considerably lower than the average observed over the current 47-month period of growth and was surpassed by that recorded at the UK level.

Meanwhile, the Midlands was the only monitored region to observe an acceleration in the rate of permanent salary inflation for the month, also registering the sharpest increase. The South of England once again was the only area to record a fall.

Temp wages across London rose for a fourth straight month in January. That said, the rate of increase cooled from that seen in December to signal only a slight uptick.

Even with just a modest increase in temporary wages in the capital, the growth rate in London exceeded that seen for the UK as a whole.

Neil Carberry, REC Chief Executive, said: “Businesses entered the year uncertain on the growth path, and that has driven a “wait and see” approach to hiring. Around the country, REC members report that clients have plans and are hopeful for the year ahead – but firms are slowing investment until they see more momentum in the economy.

“Permanent starting salary inflation in the capital eased from December’s five-month peak and temp pay also cooled from the previous month.

“Last week’s move on interest rates was timely as a way of boosting confidence. The more central role of growth in Government thinking since the Chancellor’s speech last month will also help. But it takes time, and real action, to build business confidence.

“An autumn of fiscal gloom, difficulty navigating significant upcoming tax rises and little progress on the practicalities of a costly new approach to employment rights are all acting as brakes on progress. As well as the monetary stimulus to growth, it’s time for greater clarity on how the Government will use its industrial strategy to drive the growth of the whole economy.”