The UK labor market is selling as permanent and temporary employment both fall
The UK labor market ended 2025 on a weak note, with permanent and temporary employment falling in December and unemployment already sitting at a four-year high.
Labor market research closely monitored by KPMG and the Recruitment and Employment Association (REC) shows that full-time employment fell to less than four months at the end of the year, while temporary roles also fell. Vacancies continued to decline and labor availability increased sharply, underscoring a slack market rather than a rebound.
These figures indicate that the uncertainty caused by the November Budget is still weighing heavily on employers. Confidence among businesses and households fell during the financial crisis as firms braced for higher taxes and rising labor costs.
Separate data published by the REC last week showed that most employers do not expect a meaningful increase in employment through 2026. Businesses are often hampered by high payroll costs, including rising national wages and the impact of lower National Insurance limits.
Neil Carberry, chief executive of the REC, said the December survey indicated further deterioration compared to November, when the Budget was announced at the end of the month. Although the overall pace of the decline in placements was more severe than earlier in the winter, permanent employment fell at the fastest pace since August.
“Making this a better year for hiring will require a focus on rebuilding business confidence,” said Carberry. “With the Budget behind us, firms need clear and reliable guidance from government – from industrial strategy to the effective implementation of the Employment Rights Act, which is a concern for many employers.”
The sharp decline comes as unemployment reached 5.1 percent in the last quarter of last year, the highest level in four years. Economists polled by The Times believe the unemployment rate could rise further, possibly reaching 5.5 percent by 2026 – a level not seen for more than a decade.
Despite a soft labor market and slow economic growth, many economists and traders expect the Bank of England to cut interest rates more than twice this year. Lower borrowing costs may help lower employment and investment costs, but policymakers remain cautious amid continued inflationary pressures.
The Bank of England’s latest survey of decision-makers shows that businesses expect to downsize by 2026, while payrolls are predicted to fall slightly, from 3.8 to 3.7 percent.
That tension is reflected in the REC data, which showed full-time payrolls rising at the fastest pace since May, suggesting that inflationary pressures have not completely dissipated. Part-time wages also rose in December after stalling the previous two months, although overall wage growth remained below its long-term average.
Regionally, the Midlands was the strongest performer and the only part of England to record growth in temporary areas. Rents continued to fall in London and across much of the north and south of England.
Meanwhile, recruitment firm Morgan McKinley reported that vacancies in the financial services sector in London fell by 16 per cent in the last quarter of 2025, although overall job numbers in the sector are still rising by 16 per cent year-on-year – highlighting how unbalanced the job market has become.
