The decline in UK hiring may be beginning to stabilize after new data showed a slowing decline in job vacancies and a rebound in activity in the country’s key services sector.
An index compiled by the Recruitment and Employment Confederation and KPMG to track permanent hiring rose to 49.2 in February, up from 46.9 in January. Although the reading is still just below the 50-point threshold that separates expansion from contraction, it represents the strongest result since March 2023 and suggests that the pace of the decline in hiring is moderating.
The figures suggest the UK labor market may be nearing a tipping point after a prolonged slowdown triggered by rising employment costs and economic uncertainty.
The number of full-time job vacancies continued to decline in February, but the pace of decline slowed noticeably compared to previous months. Nevertheless, the labor market remains under pressure as job vacancies have fallen for 28 consecutive months, underscoring continued caution among employers.
Businesses are grappling with a difficult combination of higher operating costs and weaker economic confidence. Recent policy changes, including increases in employers’ national insurance contributions and higher statutory pay levels introduced during Chancellor Rachel Reeves’ first two Budgets, have led to rising wage costs across many sectors.
These changes have contributed to a weaker labor market, particularly for entry-level and younger workers. Official statistics show unemployment has risen to its highest level since the pandemic, with youth unemployment rising to 16.1 percent, the highest rate in more than a decade.
Despite these challenges, recruiters say the latest data suggests the hiring decline may be near its bottom.
Neil Carberry, chief executive of the Recruitment and Employment Confederation, said the figures suggested a gradual stabilization.
“While the February report is by no means a cause for celebration, it does suggest that the worst of the decline in hiring has passed,” he said. “We may still have a few bumpy months ahead, particularly given global instability, but the stabilization trend we have seen so far this year has continued.”
The survey also found that wage pressures have eased following a period of strong wage growth due to labor shortages.
Both starting salaries for permanent positions and wages for temporary workers continued to rise, although more slowly than at the beginning of the year and below their long-term averages. This cooling trend could provide some relief to employers who have struggled with rising labor costs over the past two years.
Demand for temporary workers also weakened in February. The retail sector saw the largest decline in short-term hiring, reflecting continued pressure on consumer spending and high street activity.
However, the decline in temporary positions was smallest in mechanical engineering and the technical industry, indicating that the demand for skilled workers in these sectors remains relatively stable.
Separate research from BDO suggests that improved activity in the UK services sector could help support hiring levels.
The BDO service production index rose to 98.80 in February from 97.67 in January, marking the highest level in a year.
The services sector makes up around 80 percent of the UK economy, meaning changes in its performance often have a major impact on employment trends.
BDO analysts suggest the recent improvement could be partly due to policy changes, including the government’s decision to moderate planned increases in business rates for pubs and hospitality establishments.
The stronger services activity is in line with other indicators that suggest the UK economy has made a solid start to the year.
The composite purchasing managers’ index (PMI), which measures activity in the manufacturing and services sectors, has been above the 50-point growth threshold since May 2025 and hit a near five-month high in February.
Despite the encouraging signals, economists warn that the labor market recovery could prove fragile if global economic conditions deteriorate.
The escalating conflict in the Middle East has pushed up energy prices in recent weeks, raising concerns that inflationary pressures could return.
Analysts at Goldman Sachs and JPMorgan Chase have both warned that a continued rise in oil prices could slow economic growth in the United Kingdom and other major economies.
Meanwhile, the Office for Budget Responsibility has warned that geopolitical instability could trigger a “significant” shock to the global economy if energy markets remain volatile.
Higher fuel and transportation costs could impact operating costs and potentially discourage companies from expanding their workforce.
While the latest hiring data suggests the UK labor market may be stabilizing, economists say a sustained recovery will depend on several factors, including inflation trends, interest rate policy and the broader geopolitical environment.
Currently, the slowing decline in job vacancies and the revival of service activity are early signs that the decline in hiring may be nearing its end.
But with global uncertainty still looming, employers remain cautious about hiring on a large scale, meaning the recovery in job creation in the coming months is likely to be gradual rather than dramatic.
