Permanent staff appointments across the UK increased in August for the first time since September 2022, providing an early sign of improvement after a prolonged downturn in recruitment.

A KPMG and Recruitment and Employment Confederation (REC) UK Report on Jobs released on Monday recorded a Permanent Placements Index reading of 50.5, up from 50.0 in July. Recruiters linked the increase to companies expanding capacity, winning contracts and becoming more confident about market conditions.

The improvement remained modest, however, with employers continuing to hold back recruitment because of uncertainty about the economy and government policy. Overall demand for staff also continued to fall, suggesting the labour market remains some way from a broad recovery.

Temporary recruitment strengthens

Employers continued to make greater use of temporary workers during August. Billings received by recruitment consultancies for temporary and contract staff increased for a fifth consecutive month, with growth reaching its second-fastest rate since April 2023.

Recruiters attributed the increase to greater amounts of contract work and employers favouring temporary staff. The Temporary Billings Index rose from 51.9 in July to 52.4 in August.

Permanent recruitment varied considerably around England. Appointments increased in London and the Midlands but declined in the South and North. London recorded an index reading of 53.6, while the Midlands stood at 51.6.

Jon Holt, group chief executive and UK senior partner at professional services firm KPMG, said employers had become more willing to recruit after adapting to prolonged economic and geopolitical uncertainty.

“Confidence is beginning to return to the market,” he said. “Businesses have learned to adapt to constant global uncertainty, building greater resilience into their strategies. Since the spring, employers have favoured flexible temporary hires to support their investment plans, but permanent placements have also now risen for the first time in almost four years.”

Holt cautioned that the improvement in permanent appointments was taking place against a labour market where vacancies were still declining and more people were looking for work.

“This is clearly encouraging after such a prolonged downturn in hiring, but the jobs market continues to contract overall. Vacancies are still falling, the number of people looking for work continues to rise, and some employers are keeping the brakes on recruitment because of continued geopolitical uncertainty and elevated borrowing costs.”

Vacancies fall as candidate numbers rise

Demand for staff declined for the 34th consecutive month in August. The Total Vacancies Index stood at 47.0, little changed from 47.1 in July, although the rate of decline was the second weakest since September 2024.

Permanent vacancies have now fallen for three years. Demand for temporary workers also declined following an increase in July, although the latest reduction was marginal. In the private sector, permanent vacancies stabilised while demand for temporary staff increased sharply. Public-sector demand fell for both categories.

There were substantial differences between industries. Engineering and accounting and financial services were the only two of the ten categories monitored to record higher permanent vacancies. Retail and hotel and catering experienced the steepest reductions.

Employers also had a growing pool of candidates from which to recruit. Overall staff availability increased at its fastest rate for three months, extending a period of growth that has lasted three and a half years.

The supply of people seeking permanent positions increased particularly strongly. Recruiters cited redundancies, fewer employment opportunities and concerns about job security as reasons for the rise. Company layoffs and a lack of contract opportunities were also reported to be increasing the number of people available for temporary work.

Despite greater candidate availability, recruiters continued to report shortages in a range of occupations. These included human resources, employee relations, engineering, accounting, cyber security, AI and machine learning, healthcare and a range of skilled manual roles.

Starting salaries rise at fastest pace since January

Competition for specialist skills contributed to stronger pay growth during August. Starting salaries for people securing permanent positions increased at the fastest rate for seven months, extending an uninterrupted period of growth lasting five and a half years.

Recruiters reported that some employers were increasing salary offers to secure highly skilled candidates and people with niche expertise. Permanent starting pay rose across all four English regions covered by the survey, with the strongest increase in the South.

Hourly pay for temporary workers increased for a ninth consecutive month. Growth eased from July’s 26-month high but remained solid, with competition for scarce skills, living costs and negotiations with candidates cited as contributing factors.

Maxine Bligh, interim chief executive of the REC, said the return of permanent recruitment growth alongside stronger temporary hiring was encouraging, but called for measures to support employers’ willingness to recruit.

“The job market is starting to power up again after employers had permanent hiring on the standby button for the past four years. It is encouraging that temporary recruitment is now complementing rather than replacing permanent hiring. Now we need to see this confidence to hire widen out across the country and more sectors of the economy.”

She argued that government policy would play an important role in determining whether the improvement develops into a sustained recovery, pointing in particular to the Employment Rights Act and the forthcoming Budget.

“Government, business and trade unions must act to shore up this fragile momentum in the job market. This is not the time to take the job market for granted.”

The report is compiled by S&P Global from responses to around 400 UK recruitment and employment consultancies. Data for the latest edition were collected between 12 and 24 August.