UK companies are increasingly relying on temporary workers instead of hiring permanent staff as employers grapple with economic uncertainty, rising operational costs, geopolitical instability and tighter business conditions, according to new research from recruitment industry bodies.
A report published by KPMG and the Recruitment and Employment Confederation (REC) revealed that demand for temporary employees rose sharply in May, while recruitment for permanent positions recorded its steepest decline in nearly a year. The findings reflect growing caution among British employers as businesses attempt to preserve flexibility during a period marked by economic volatility, global conflict and rising employment costs.
The latest survey, based on responses from approximately 400 recruitment consultancies across the UK, paints a picture of a labour market under pressure. Employers are increasingly reluctant to commit to long-term hiring decisions as they navigate concerns surrounding domestic economic performance, geopolitical tensions in the Middle East and changes to employment regulations.
According to the report, permanent staff appointments fell at the fastest pace in 10 months during May. Recruiters attributed the slowdown to weakened employer confidence and rising financial pressures, with many companies postponing expansion plans or freezing recruitment altogether.
At the same time, temporary hiring activity strengthened as businesses sought more flexible staffing arrangements capable of adapting to uncertain market conditions. Industry experts said employers increasingly view temporary contracts as a lower-risk alternative that allows firms to maintain operational capacity without committing to long-term salary and employment obligations.
Neil Carberry, Chief Executive of the Recruitment and Employment Confederation, said businesses were becoming more cautious due to a combination of higher costs, international instability and regulatory uncertainty.
“With businesses tapping the brakes on permanent hiring in the face of higher costs, the Gulf crisis and new employment red tape, temporary work is making up the gap,” Carberry said.
The report also highlighted rising competition for available roles as redundancies, reduced hiring activity and concerns about job security pushed more candidates into the labour market. Recruiters reported an increase in job applications across both permanent and temporary sectors, contributing to slower wage growth for new hires.
Salary growth for entry-level workers and temporary staff remained modest in May compared with previous months, reflecting weaker employer demand and tighter recruitment budgets. Analysts noted that while inflationary pressures continue to affect businesses, employers are increasingly prioritising cost management over aggressive workforce expansion.
The findings come amid broader concerns about the fragility of the UK labour market. Official data recently showed the national unemployment rate unexpectedly rising to 5% in the three months to March, while wage growth has also slowed. Economists warn that prolonged uncertainty could further weaken business confidence and suppress recruitment activity in the months ahead.
Sector-specific data from the KPMG and REC report showed that the nursing, medical and care industries remained among the few areas still experiencing growth in permanent hiring demand. Ongoing staffing shortages across healthcare and social care continue to drive recruitment needs despite wider economic pressures.
By contrast, the retail sector experienced the steepest decline in permanent job opportunities. Retailers continue to face mounting challenges including rising operating costs, weaker consumer spending, inflationary pressures and the growing financial burden associated with wages and supply chains.
Business leaders have increasingly warned about the long-term implications of slowing recruitment, particularly for younger workers entering the labour market. Concerns over declining entry-level opportunities intensified after a recent government-backed report revealed that the number of young people not in education, employment or training had surpassed one million for the first time in more than a decade.
Several major employers have warned that weakening business confidence is reducing the availability of graduate and junior-level roles. Simon Wolfson, Chief Executive of retailer Next, recently cautioned that a “dramatic fall” in entry-level jobs could worsen youth unemployment and limit opportunities for young people attempting to begin their careers.
Economic uncertainty continues to weigh heavily on employer sentiment. Rising energy prices, inflationary pressures, geopolitical instability and ongoing concerns over international trade routes have all contributed to cautious business planning across multiple industries.
Jon Holt of KPMG said employers are increasingly prioritising workforce flexibility while delaying major hiring commitments.
“Ongoing global and domestic uncertainty is making businesses more cautious and that is increasingly reflected in hiring decisions,” Holt explained. “While some employers are turning to temporary contracts to retain flexibility, many permanent hiring plans are being delayed or put on hold.”
Analysts suggest the shift towards temporary employment could become a defining feature of the UK labour market if economic uncertainty persists. Temporary roles often provide businesses with short-term adaptability, but labour experts warn that excessive reliance on insecure work can undermine long-term workforce stability, employee retention and career progression.
The report also raises concerns about the broader economic outlook for the UK. Slowing permanent recruitment is frequently viewed as a sign of reduced business confidence and weaker expectations for future growth. Economists note that employers typically reduce long-term hiring commitments when anticipating lower consumer demand or uncertain trading conditions.
Despite these concerns, some sectors continue to demonstrate resilience. Healthcare, logistics, specialist technology services and parts of the public sector remain relatively active in recruitment, driven by structural demand and ongoing labour shortages.
However, economists caution that unless business confidence improves significantly, the UK jobs market could face continued instability throughout the remainder of the year. Much will depend on inflation trends, interest rate decisions, geopolitical developments and the government’s approach to economic and labour market policy.
The growing reliance on temporary employment reflects the balancing act facing UK businesses: maintaining operational flexibility while attempting to manage financial risks in an increasingly unpredictable economic environment.