Unemployment Rises Despite Signs of Hiring Recovery

The jobs market in the UK is experiencing a resurgence of uncertainty as unemployment has risen to a near five-year high of 5.1 per cent. Reports indicate that several companies are lifting hiring freezes, signalling potential improvements in employment conditions, following an initial decline in hiring.

Research conducted by the Recruitment and Employment Confederation in collaboration with KPMG suggests that the rapid reduction in hiring has reached a plateau. The index measuring permanent staff recruitment increased to 46.9 in January, up from 44.3 in December of the previous year. Although this represents the highest level in 18 months, it still remains below the critical 50-point threshold that demarcates growth from decline.

Economic conditions have shifted slightly since last November’s budget announcement, which alleviated some market uncertainties. This development has prompted various chief executives to consider advancing their hiring plans. The Bank of England’s latest assessments have echoed these sentiments, noting that the negative effects of the £25 billion increase in employer national insurance contributions are beginning to dissipate.

Despite these hopeful signs, the services sector continues to grapple with significant job losses, having seen layoffs each month since October 2024. This protracted period of job cutting has not occurred in over a decade, revealing the challenges businesses face in navigating the current economic landscape.

Lisa Fernihough, head of advisory at KPMG UK, remarked on the current climate as one that while encouraging, is still fraught with challenges. The labour market is in a state of cautious stability, with businesses reluctant to make bold hiring decisions amid ongoing economic uncertainty.

BDO’s research highlights the fact that economic output has surged to its highest level in over a year, boosting overall business confidence. However, the rising cost of employment, spurred by recent payroll tax increases, continues to stifle the labour market. With the employment index falling to its lowest level since March 2011, the immediate outlook appears complex.

This challenging environment reflects a peculiar situation of low hiring and low firing, as businesses are hesitant to make decisive moves while navigating underlying uncertainty. With payroll employment falling by 220,000 since October 2024, the pressure remains on businesses to adopt a cautious approach moving forward.