Permanent staff appointments across the UK saw a softer decline during September amid ongoing economic uncertainty and efforts to control costs. At the same time, temp billings saw a return to growth, according to the latest Report on Jobs by the Recruitment and Employment Confederation and KPMG, compiled by S&P Global.

September’s data showed recruitment firms across the UK signalled a further decline in permanent staff appointments during September, thereby stretching the current period of contraction to one year. The rate of reduction eased from August's 38-month record and was the slowest since June.

Companies reported that they remained hesitant to hire extra workers or had implemented recruitment freezes due to rising costs and lingering economic uncertainty. Skill shortages also contributed to difficulties filling vacancies. All four monitored English regions recorded declines in permanent placements, though in all cases rates of contraction slowed from August.

Meanwhile, the rate of expansion in temp billings was the most pronounced since April. The upturn was linked to firmer demand for short-term staff, with some companies preferring the flexibility of temporary workers over permanent personnel. Other recruiters mentioned that greater pressure on budgets amid tighter financial conditions and high inflation had weighed on overall growth, however, which was below the long-run trend.

Temp billings increased in all four monitored English areas bar the south of England during September. The quickest expansion was recorded in the capital.

As for vacancies, recruitment firms signalled a fresh fall in permanent vacancies during September. Though marginal, it marked the first reduction in just over two-and-a-half years. At the same time, growth of demand for temporary staff moderated to a four-month low.

Demand for permanent staff fell across both the private and public sectors during September, with the latter noting by far the steeper rate of decline. Divergent trends were meanwhile seen for temporary vacancies. In the private sector, demand for short-term staff rose at a softer, but still solid pace, but decreased across the public sector.

Permanent staff vacancies increased in five of the ten broad employment categories during September, led by hotel and catering. The steepest reductions in permanent labour demand were meanwhile seen in the retail and construction sectors.

Demand for temporary staff rose in five of the ten employment sectors covered by the report. Nursing/medical/care registered the strongest rise in vacancies overall. Sharp deteriorations in demand were meanwhile signalled for retail and executive/professional workers.

The REC’s data compared to data from the Office for National Statistics (ONS) which pointed to a further reduction in overall vacancies in the three months to August 2023. At 989,000 the number of open roles dropped by 64,000 since the three months to May and slipped below the 1 million mark for the first time in over two years.

Further data from the report showed overall candidate supply expanded at slower rate in September.

The availability of workers for permanent roles continued to increase. Though sharp, the rate of growth slowed for the second month running and was the least pronounced since April. Where higher candidate numbers were reported, panellists frequently linked this to companies restructuring workforces and redundancies. The report also mentioned jobseekers were looking for hybrid work roles or jobs with better pay.

The upturn in permanent candidate supply was broad-based across all four monitored English regions, and led by the North of England.

The supply of short-term staff across the UK continued to expand rapidly in September, with growth holding close to August's 32-month record. The REC noted that respondents stated that a slowdown in market conditions and company layoffs underpinned the latest upturn in temp candidate supply. The sharpest increase in temp labour availability was recorded in the South of England, and the softest in the Midlands.

In terms of pay, the rate of starting salary inflation for permanent roles across the UK continued to moderate in September. Higher starting salaries were generally attributed to competition for skilled workers and the higher cost of living. Although sharp, the rate of growth was the softest recorded since March 2021 and broadly in line with the series average. Across the four monitored English areas, London was the only region to register a sharper rise in permanent pay compared to August.

On the temporary worker side, the report noted the softest increase in temp wages for 31 months. Recruiters commented that firms were generally having to offer higher pay to attract and secure candidates with desirable skills. However, others noted that budgetary pressures had weighed on overall pay growth. London registered the quickest rise in temp wages.

Neil Carberry, REC Chief Executive, said in the report, “Employers tell us they are feeling better about themselves as the year moves on, and today’s data does suggest the possibility of a turnaround in hiring over the next few months. Permanent placements have been falling for a year now from abnormal post-pandemic highs. While permanent hiring activity continues to slow, fewer firms reported a slowdown last month, leading to a much shallower rate of decline than most months recently. Likewise, temporary hiring remains robust with billings growing marginally in September, as they have most months this year.”

“This feels like a market that is finding the bottom of a year-long slowdown,” Carberry continued. “And the relative buoyancy of the private sector is likely to be driving this more positive outlook, while vacancies are now dropping they remain robust in the private sector by comparison to the public.”

“Some sectors such as hospitality, engineering, logistics and healthcare continue to experience very strong and growing demand. Along with high inflation, this is likely to be contributing to the growth of pay for temps and perms alike,” Carberry added.

Claire Warnes, Partner, Skills and Productivity at KPMG UK, said, “A concerning feature of this month’s data is that demand for staff is losing momentum, with total vacancies falling for the first time since February 2021 amid a fresh reduction in permanent vacancies. While both reductions are slight, employers are clearly nervous due to the long-term economic uncertainty and budget constraints that are impacting businesses everywhere. This in turn is leading to a continued reliance on temporary staff.”

“For several months, strong pay growth has been a consequence of a tight labour market,” Warnes said. “But strains on employers’ budgets are now affecting the rate of starting salary inflation which is at a two-and-a-half year low, while temporary wages increased at the slowest rate in 31 months. Skill shortages across a range of sectors – from permanent IT staff to temporary nursing roles – also continue to be an area of long-term concern for the economy.”

“The labour market is starting to look slightly precarious again and recruiters will be wondering and hoping that the recent slight calming of inflation rates positively impacts the outlook for both employers and jobseekers,” Warnes said.