UK firms pivot to temporary staffing as economic uncertainty curbs permanent hiring
A joint report by KPMG and the Recruitment and Employment Confederation highlights a structural shift in the labour market, with businesses prioritising flexibility over long-term commitments.
UK companies are increasingly favouring temporary workers over permanent staff as low economic confidence and rising operational costs constrain hiring plans. A report by KPMG and the Recruitment and Employment Confederation (REC) indicates a strong rise in temporary role offers in May, coinciding with the steepest fall in permanent recruitment in ten months. This divergence underscores a fragile labour market where political turbulence and the ongoing conflict in the Middle East have dampened business sentiment.
Neil Carberry, chief executive of the REC, stated that businesses are utilising temporary contracts to maintain flexibility amidst higher costs and new employment regulations. He noted that with firms tapping the brakes on permanent hiring due to the Gulf crisis and regulatory red tape, temporary work is filling the gap. This strategic shift is driven by a surplus of labour supply, as redundancies and job security concerns have increased the number of candidates applying for roles.
The impact of this cautious approach is evident across specific sectors. The retail sector experienced the sharpest decline in permanent job positions, while the nursing, medical, and care sectors were the only monitored areas to register higher demand for permanent staff. Jon Holt of KPMG observed that ongoing global and domestic uncertainty is making employers more cautious, with many permanent hiring plans being delayed or put on hold.
Compounding the structural shift in hiring is a deterioration in broader labour market indicators. Official figures show the unemployment rate unexpectedly rose to 5% in the three months to March, with wage growth slowing. Salaries for entry-level and temporary workers rose only modestly in May, reflecting the high volume of candidates and tighter corporate budgets.
The labour market strain is particularly acute for younger workers. A government-backed report warns that the number of young people not in work or education has surpassed one million for the first time in more than a decade. Simon Wolfson, chief executive of retailer Next, has cautioned that a dramatic fall in entry-level jobs is a primary driver of this rising youth unemployment.