UK Jobs Market Cools in July as Hiring and Pay Growth Slow

The UK labour market continued to lose momentum in July, according to the latest KPMG and REC Report on Jobs, with hiring activity slowing, vacancies falling, and pay growth easing to its weakest level in over four years.

While some sectors showed early signs of resilience, economic uncertainty, cost pressures, and shifting business priorities – including AI adoption – kept recruitment budgets tight.

Key Findings from July’s Report

• Permanent placements fell sharply across all UK regions for the second consecutive month. The South of England recorded the steepest drop.
• Temporary billings also declined at the fastest rate in six months, led by London, as cost-cutting dampened demand.
• Starting salaries rose only modestly – the slowest pace since March 2021 – as greater candidate availability eased pay pressures. Temp pay growth also hit a five-month low.
• Candidate supply surged again, with redundancies and job security concerns swelling the talent pool to one of the highest levels in the survey’s 28-year history.
• Vacancies dropped at their sharpest rate in three months, with permanent roles falling fastest since February and temporary roles since April.
• Sector snapshot: Construction and blue-collar temp roles held steady or grew, while retail and hospitality hiring weakened. Permanent engineering roles remained resilient.

Why It’s Happening

Jon Holt, Group Chief Executive at KPMG UK, said July’s hiring slowdown reflected “economic uncertainty, the complexities of AI adoption and global headwinds.”

Kate Shoesmith, Deputy Chief Executive at REC, emphasised the need for co-ordinated action from government, the Bank of England, and business to stabilise costs and encourage growth. She noted that interest rate cuts are a step in the right direction but warned that skills shortages remain a pressing challenge.

Pay Pressures Ease

The cooling jobs market is tempering wage growth:

• Employers are less inclined to increase salaries outside of highly skilled roles.
• The Bank of England’s recent rate cut was partly justified by this easing inflationary pressure.
• ONS data shows UK average weekly earnings growth slowed to 5.0% in the three months to May – the weakest since September 2024.

Industrial Strategy – Future Talent Opportunities

While short-term hiring is subdued, the government’s refreshed Industrial Strategy offers recruiters a roadmap to future growth. Seven priority sectors – from clean energy and manufacturing to professional services and financial services – are set to receive targeted investment in skills, training, and regional clusters.

Recruiters who align with these developments now could gain an advantage when hiring rebounds, particularly in:

• Clean energy – transitioning oil & gas talent into renewables.
• Digital & AI – matching frontier tech firms with specialist talent.
• Manufacturing & engineering – addressing skills gaps in high-level technical roles.

Regional Spotlight – Scotland

In Scotland, both permanent placements and temp billings fell in July, with salary growth softening to multi-year lows. However, candidate availability rose strongly, especially for short-term staff, which saw the sharpest supply growth since September 2020.

Outlook

The jobs market is in a holding pattern – resilient in pockets, but constrained overall by uncertainty and cost pressures. Interest rate cuts and targeted industrial investment may help unlock hiring in the months ahead, but skills shortages remain a structural challenge.

For recruiters and employers, this is the moment to focus on:

• Building talent pipelines ahead of recovery.
• Upskilling and reskilling initiatives to tackle shortages.
• Positioning within growth sectors supported by the Industrial Strategy.

As Shoesmith put it: “When the turn comes, industries like retail and hospitality typically rebound quickly – businesses need to be ready for that moment.”