The UK labor market ended 2025 on a weak footing, with both permanent and temporary hiring falling in December and unemployment already reaching its highest level in four years.
A closely watched labor market survey by KPMG and the Recruitment and Employment Confederation (REC) shows permanent placements fell to a four-month low at the end of the year, while the number of temporary jobs also fell. The number of job vacancies continued to decline and labor availability rose sharply, showing that the market is easing rather than recovering.
The figures suggest that the uncertainty caused by the November Budget is still weighing heavily on employers. Business and household confidence fell in the run-up to the budget event as businesses braced for higher taxes and rising employment costs.
Separate data released last week by the REC showed that most employers do not expect a significant increase in hiring in 2026. Businesses continue to be constrained by higher labor costs, including increases in the national living wage and the impact of lower social security thresholds.
REC chief executive Neil Carberry said the December survey suggested further deterioration compared to November when the budget was announced at the end of the month. While the overall decline in job placements was somewhat less severe than at the beginning of winter, the number of permanent positions fell faster than at any time since August.
“Making this a better year for hiring requires a focus on restoring business confidence,” Carberry said. “With the Budget now behind us, businesses need clear and credible direction from the government – from industrial strategy to a more pragmatic approach to the Employment Rights Act, which is a concern for many employers.”
The slowdown comes as unemployment already reached 5.1 percent in the final quarter of last year, the highest level in four years. Economists surveyed by The Times expect the unemployment rate to continue rising, potentially reaching 5.5 percent in 2026 – a level not seen in more than a decade.
Despite the weakening labor market and sluggish economic growth, most economists and traders expect the Bank of England to cut interest rates at most twice this year. Lower borrowing costs would help reduce hiring and investment costs, but policymakers remain cautious amid ongoing inflationary pressures.
The Bank of England’s latest survey of decision-makers shows that companies expect to cut staff numbers in 2026, while pay settlements are expected to fall only slightly, from 3.8 percent to 3.7 percent.
This tension is reflected in the REC data, which showed that wages for permanent workers rose at the fastest pace since May, suggesting that inflationary pressures have not completely disappeared. Temporary wages also rose in December after being stagnant in the previous two months, although overall wage growth remains below its long-term average.
Regionally, the Midlands was the best performing region and the only part of England to see an increase in temporary jobs. Hiring continued to fall in London and much of the north and south of England.
Meanwhile, recruitment firm Morgan McKinley reported that vacancies in London’s financial services sector fell 16 per cent in the final quarter of 2025, although total jobs in the sector were still up 16 per cent year-on-year – highlighting how uneven the labor market has become.
