The decline in UK hiring may be beginning to stabilise after new data showed a slowdown in falling job vacancies and a rebound in activity across the country’s crucial services sector.
An index tracking permanent hiring, produced by the Recruitment and Employment Confederation and KPMG, rose to 49.2 in February, up from 46.9 in January. Although the reading remains just below the 50-point threshold that separates expansion from contraction, it marks the strongest result since March 2023 and indicates that the pace of decline in recruitment is easing.
The figures suggest the UK labour market may be approaching a turning point after a prolonged slowdown triggered by rising employment costs and economic uncertainty.
Vacancies for full-time roles continued to fall during February, but the pace of decline moderated noticeably compared with previous months. Nevertheless, the labour market remains under pressure, with job vacancies declining for 28 consecutive months, highlighting the persistent caution among employers.
Businesses have been grappling with a difficult combination of higher operating costs and weaker economic confidence. Recent policy changes, including increases in employer national insurance contributions and higher statutory wage levels introduced during Chancellor Rachel Reeves’s first two budgets, have pushed up payroll expenses across many sectors.
Those changes have contributed to a softer labour market, particularly for entry-level roles and younger workers. Official statistics show unemployment has risen to its highest level since the pandemic, with youth unemployment climbing to 16.1 per cent, the highest rate in more than a decade.
Despite these challenges, recruitment leaders say the latest data indicates the downturn in hiring may be close to its lowest point.
Neil Carberry, chief executive of the Recruitment and Employment Confederation, said the figures pointed to a gradual stabilisation.
“While February’s report is by no means a source of unalloyed celebration, it does suggest that the worst of the hiring slowdown has passed,” he said. “There may still be a few bumpy months to come, especially in light of global instability, but the stabilising trend we have seen so far this year has continued.”
The survey also found that wage pressures have started to ease after a period of strong salary growth driven by labour shortages.
Both starting salaries for permanent roles and pay rates for temporary workers continued to rise, but at a slower pace than earlier in the year and below their long-term averages. This cooling trend may offer some relief to employers that have struggled with rising labour costs over the past two years.
Demand for temporary workers also weakened during February. The retail sector reported the steepest drop in short-term hiring, reflecting continued pressure on consumer spending and high street activity.
By contrast, engineering and technical industries saw the smallest decline in temporary vacancies, suggesting demand for skilled workers in those sectors remains relatively resilient.
Separate research from BDO indicates that improved activity in the UK services sector may be helping support hiring levels.
BDO’s services output index rose to 98.80 in February, up from 97.67 in January, marking the strongest reading in a year.
The services sector accounts for around 80 per cent of the UK economy, meaning changes in its performance often have a major impact on employment trends.
BDO analysts suggested that the recent improvement could partly reflect policy changes, including the government’s decision to soften planned increases in business rates for pubs and hospitality venues.
Stronger services activity aligns with other indicators suggesting the UK economy has made a solid start to the year.
The composite purchasing managers’ index (PMI), which measures activity across manufacturing and services, has remained above the 50-point growth threshold since May 2025, and reached a near five-month high in February.
Despite the encouraging signals, economists warn that the labour market recovery may prove fragile if global economic conditions deteriorate.
The escalation of conflict in the Middle East has pushed energy prices higher in recent weeks, raising concerns about inflationary pressures returning.
Analysts at Goldman Sachs and JPMorgan Chase have both warned that sustained increases in oil prices could slow economic growth in the UK and other major economies.
Meanwhile the Office for Budget Responsibility has cautioned that geopolitical instability could deliver a “significant” shock to the global economy if energy markets remain volatile.
Higher fuel and transport costs could feed through into business operating expenses, potentially discouraging companies from expanding their workforce.
While the latest hiring data suggests the UK labour market may be stabilising, economists say a sustained recovery will depend on several factors, including inflation trends, interest rate policy and the wider geopolitical environment.
For now, the slowdown in falling vacancies and renewed services activity provide tentative signs that the downturn in recruitment could be nearing its end.
But with global uncertainties still looming, employers remain cautious about committing to large-scale hiring, meaning the recovery in job creation is likely to remain gradual rather than dramatic in the months ahead.
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UK job vacancies fall at slower pace as service sector picks up
