UK jobs slump deepens as Starmer woes add to headwinds, REC says

BRITISH employers scaled back hiring at an accelerated pace in May amid continuing war in the Middle East and political turmoil at home, according to a survey watched by the Bank of England.

Placements of permanent staff dropped the most in 10 months with firms citing low confidence and increased cost pressures, the poll by the Recruitment and Employment Confederation and KPMG found. Vacancies also fell at a faster pace and pay growth remained modest.

Companies say they are reluctant to make big spending decisions, with many instead relying on short-term hires to meet staffing needs.

Bosses grappling with the economic fallout from the war in the Persian Gulf now face months of political turbulence after local elections left Prime Minister Keir Starmer facing a likely leadership challenge.

“Ongoing global and domestic uncertainty is making businesses more cautious, and that is increasingly reflected in hiring decisions,” said Jon Holt, group chief executive and UK senior partner at KPMG. “While some employers are turning to temporary contracts to retain flexibility, many permanent hiring plans are being delayed or put on hold.”

The warning appears to strengthen the case of BOE policymakers who are nervous about rushing into interest-rate hikes in response to the energy shock unleashed by the Iran conflict.

They include Governor Andrew Bailey, though others such as external rate-setter Megan Greene and chief economist Huw Pill are more wary about the risk of second-round inflation effects. The Monetary Policy Committee announces its next decision on June 18, with economists and investors expecting the benchmark rate to stay at 3.75 per cent.

An index tracking permanent placements has indicated contraction since 2022, the longest stretch since the survey began since 1997. Temporary hires, meanwhile, rose in May at their fastest pace in over three years.

The report illustrates how firms are being squeezed by both rising costs and weakening demand, with consumers cutting back spending as they brace for further increases in household bills. Placements fell sharply across the Midlands and the South of England, including London. Northern England was the only region to post an increase.

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A BOE survey last week showed many companies plan to raise prices to shield their profit margins. However, economists and investors think the weakness of the labour market will limit how far the BOE raises rates this year. BLOOMBERG