A weaker economic climate and reduced business confidence contributed to the decline in permanent staff appointments, according to Claire Warnes, partner at KPMG.
She said: “Recruiters told us their clients aren’t yet confident enough in the economic outlook to commit to permanent placements, leading to the steepest pace of decline in billings for temporary workers since June 2020.
“Conversely, the growth in billings for temporary workers weakened last month as job hunters held out for permanent roles.”
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There was a sharp rise in candidate availability of both permanent and temporary workers in July. Meanwhile, overall vacancies expanded at the slowest rate for over two years.
Warnes said this could be due to redundancies and hiring freezes.
“Businesses are still freezing hiring, with some redundancies, which led to the sharpest upturn in labour supply since December 2020," she added.
“This is good news for recruiters who have an even larger pool of candidates available increasing at the slowest pace for nearly two and a half years, supply and demand are once again off balance."
Salaries continued to rise, with permanent candidates seeing a sharper rise than temporary workers.
Warnes added: “For job seekers, the ongoing competition for skilled workers and cost of living pressures are keeping starting salaries high, making it an attractive time to move roles, though they may be cautious about doing so.”
Neil Carberry, REC chief executive, said although the job market is currently robust, it could worsen if there is no economic growth.
“Permanent hiring has been slowing all year. To some extent this is normalisation as the post-pandemic boom abates, but it is also driven by uncertainty.
“This is seen in the scale of companies reshaping themselves while hiring in other areas. Recruiters report that the quickest rise in labour supply since the pandemic has been driven by an increase in redundancies.
“However, it is also obvious in the way firms are relying on temporary labour to keep things going in uncertain times.”
Carberry said the government must create a detailed industrial strategy to tackle the signs that the labour market will worsen in the report.
“Today’s report emphasises again that sustained positivity in our labour market rests on economic growth and investment in the UK," he said.
“A proper industrial strategy that tackles the big issues we face and which fully encompasses workforce thinking around skills, transports, access to work and immigration is long overdue.”
Doirean Wilson, senior lecturer in HR management at Middlesex University, said the Bank of England's decision to raise the base interest rate from 5.00% to 5.25% last week (3 August) will greatly influence the labour market going forward.
Speaking to HR magazine, she said: "Although the Bank of England raising interest rates is to decelerate inflation, employers will feel under increasing pressure to boost salaries, which will drive inflation up even higher, so where will it all end.
“Pay freezes, redundancies, and reliance on temporary staff, comes as no surprise, as this tends to be employers 'knee-jerk` reaction when trying to survive in unpredictable environments.
“Nevertheless, the caveat is a decline in permanent placements, particularly of innovative staff, with new ideas, knowledge, and up-to-date skills, could threaten the sustainability of businesses in today’s challenging climate."
The data was collected between 12 to 25 July 2023, by the REC and KPMG using a questionnaire sent to 400 UK recruitment and employment consultancies.
