Key Takeaways
- Britain’s jobs market cooled in December, with hiring falling for the 39th month in a row and at the steepest pace in four months.
- Starting salaries for permanent jobs rose at a faster pace, with average salaries increasing by the most since May.
- Employers are wary about hiring due to the increase in payroll tax, and are instead using temporary staff to flex their workforces.
- The Bank of England is considering when to cut interest rates again, with policymakers split between those worried about inflation pressures and others focused on a downturn in the labour market.
- Investors expect one or two more 25 basis-point cuts in 2026.
Introduction to the Jobs Market
The British jobs market has shown signs of cooling down in December, according to a survey of recruiters by the Recruitment and Employment Confederation (REC) and accountants KPMG. The monthly survey, published on Monday, revealed that hiring in December fell for the 39th month in a row and at the steepest pace in four months. This decline in hiring is a cause for concern, as it may indicate a slowdown in the economy. The survey’s permanent staff placements gauge fell to 44.3, the lowest since August, and down from 45.5 in November. Temporary staff hiring also fell to 47.6 from 48.8, partly due to weak business confidence and concerns about costs.
Causes of the Slowdown
The increase in payroll tax, ordered by finance minister Rachel Reeves in her 2024 budget, has been cited by employers as a contributing factor to their wariness about hiring. This tax increase has led to a rise in costs for businesses, making them more cautious about taking on new staff. Instead, many firms are opting to use temporary staff to flex their workforces, rather than committing to permanent hires. This shift towards temporary staff is a sign of the uncertainty and caution that is prevailing in the jobs market. The availability of candidates for permanent roles edged up, while vacancies fell, indicating that there is still a supply of potential employees, but a lack of demand from employers.
Impact on Starting Salaries
Despite the slowdown in hiring, starting salaries for permanent jobs rose at a faster pace, with average salaries increasing by the most since May. This rise in starting salaries is a sign that firms are competing for candidates with in-demand skills, and are willing to pay more to attract and retain top talent. However, the pace of pay growth was below its long-run average, indicating that the jobs market is still not as strong as it has been in the past. The survey showed that employers are having to offer higher salaries to attract the right candidates, but are still being cautious about hiring due to the economic uncertainty.
Bank of England’s Response
The Bank of England is closely watching the jobs market, and is considering when to cut interest rates again. The BoE reduced interest rates by a quarter-point to 3.75% in December, and its policymakers are split between those worried about inflation pressures and others focused on a downturn in the labour market. Investors expect one or two more 25 basis-point cuts in 2026, which could help to stimulate the economy and boost hiring. However, the Bank of England will need to balance the need to support the economy with the risk of inflation, and will be closely watching the jobs market and other economic indicators to make its decision.
Conclusion and Future Outlook
In conclusion, the British jobs market has cooled in December, with hiring falling for the 39th month in a row and at the steepest pace in four months. While starting salaries for permanent jobs rose at a faster pace, the pace of pay growth was below its long-run average. Employers are wary about hiring due to the increase in payroll tax, and are instead using temporary staff to flex their workforces. The Bank of England is considering when to cut interest rates again, and will be closely watching the jobs market and other economic indicators to make its decision. As the economy continues to evolve, it will be important to monitor the jobs market and other economic indicators to understand the impact of policy decisions and external factors on the labour market.