Summary:
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UK hiring fell for a 39th straight month in December
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Permanent placements declined at the fastest pace in four months
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Starting salaries rose at the strongest rate since May
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Payroll tax rises continue to weigh on recruitment
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BoE faces tension between weaker jobs data and wage pressures
Britain’s labour market showed further signs of cooling at the end of 2025, even as wage pressures remained elevated, reinforcing the policy dilemma facing the Bank of England as it weighs the timing and pace of future interest-rate cuts.
A closely watched survey from the Recruitment and Employment Confederation and KPMG showed hiring activity weakened again in December, marking the 39th consecutive monthly decline in permanent staff placements. The downturn was the steepest in four months, underscoring persistent caution among employers amid higher costs and an uncertain economic outlook.
Businesses have increasingly pointed to the payroll tax increase introduced in Chancellor Rachel Reeves’ 2024 budget as a key factor restraining recruitment. Combined with elevated borrowing costs and subdued growth, firms continue to limit headcount expansion and rely more heavily on temporary staff to retain flexibility.
Despite the slowdown in hiring, pay growth showed renewed momentum. Starting salaries for permanent roles rose at the fastest pace since May, reflecting ongoing competition for workers with in-demand skills. Even so, wage growth remained below its long-run average, suggesting some easing from the peaks seen earlier in the inflation cycle.
Survey respondents noted a modest rise in candidate availability alongside falling vacancies, a pattern consistent with a gradual loosening of labour market conditions. Temporary hiring also declined, weighed down by weak business confidence and cost concerns.
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The BoE cut interest rates by 25 basis points to 3.75% in December, but policymakers remain divided between those focused on sticky wage-driven inflation and others warning of a more pronounced labour market slowdown.
Financial markets currently expect one or two additional quarter-point rate cuts in 2026. However, the persistence of pay growth, even as hiring weakens, complicates the outlook and suggests the BoE is likely to proceed cautiously as it assesses whether easing inflation pressures are sufficiently entrenched.
This article was written by Eamonn Sheridan at investinglive.com.