UK Recruitment Market Outlook 2026 | Hiring Trends & Agency Growth

Recruitment market insight 2026: Stability is returning but clarity matters more than ever

Across labour market data, sector performance indicators and consumer confidence research, the message is consistent: business activity is improving, but hiring confidence remains fragile and margins remain under pressure.

For recruitment businesses, this environment makes one thing increasingly important: operational and funding clarity.

MARKET SNAPSHOT

5 numbers recruitment leaders should know

A market moving from decline to stabilisation

The latest labour market data shows hiring demand is still contracting, but at a slower pace.

The Permanent Placements Index, which measures changes in hiring activity reported by recruitment consultancies, remains below 50, signalling continued decline. However, the rate of reduction is now the slowest in 18 months.¹

At the same time, temporary billings, which track agency revenue from contract and interim placements, returned to growth in January.² Temporary hiring typically rebounds before permanent recruitment during market upturns.

Demand for staff, measured by employer vacancy requests, has now fallen for 27 consecutive months, although the pace of decline is easing.³

Together, these signals suggest a market moving from contraction toward stabilisation, however sadly, not yet growth.

Candidate supply remains high – but pressures are shifting

Candidate availability, reflecting the number of people actively seeking work, continues to increase, largely driven by redundancies and fewer job opportunities. However, the rate of increase has slowed to the weakest level for a year.⁴

At the same time, pay pressures are rising. Starting salaries increased at the fastest pace in nearly 18 months due to continued shortages in specialist skills.⁵

This creates a complex environment for recruitment agencies:

• elevated candidate supply
• continued skills shortages
• rising wage pressure
• cautious employer demand

Operational efficiency and cost visibility therefore become critical to protecting margins.

Broader economic signals show activity improving before hiring

Services sector recovery – but job creation lags

The UK services sector, a major driver of professional recruitment demand, reported improving activity at the start of 2026.

The Purchasing Managers’ Index (PMI), a monthly survey measuring business activity where readings above 50 indicate expansion, rose to 54, a five-month high.⁶

New work increased at the strongest pace for three months, while business optimism reached a 15-month high.^7,8

However, employment in the services sector has now declined for 16 consecutive months, as businesses manage rising payroll costs and focus on productivity improvements.⁹

This highlights a familiar pattern: projects and activity return before hiring does.

Construction sector still weak – but improving

Construction activity remains in contraction territory, with the PMI at 46.4 in January, though this represents the slowest decline for seven months.¹⁰

• House building remains the weakest segment (39.3 index reading).¹¹
• Commercial construction is nearing stabilisation.¹²
• Business optimism has reached its highest level since May 2025.¹³

Recruitment demand across sectors is therefore likely to recover unevenly through 2026.

Consumer confidence still holding back expansion

Household confidence remains subdued.

The UK Consumer Sentiment Index, which tracks financial wellbeing, spending and job security, fell to 44.6, where readings below 50 indicate deteriorating confidence.¹⁴

Household financial wellbeing declined sharply and concerns about job security increased.^15,16

This caution limits business expansion and slows hiring decisions, particularly across consumer-driven sectors.

Why funding clarity matters more in this environment

During periods of rapid growth, funding structures often receive less scrutiny.

But in a stabilising market with cautious hiring and tighter margins, the mechanics behind funding have a direct impact on performance.

Recruitment businesses are increasingly questioning:

• How predictable is our weekly cash flow?
• What operational friction affects payments?
• How do margin holds or disallowables affect real payouts?
• Does our funding model support scaling – or restrict it?

The headline rate alone rarely reflects the full operational impact.

This is why QUBA Solutions focuses on delivering recruitment funding and operations designed around visibility, simplicity and operational flow, combining funding, back-office services and purpose-built technology to help agencies scale efficiently.

The agencies best positioned for 2026 will be operationally ready

The recruitment market is not returning to rapid expansion overnight. Instead, 2026 will reward agencies that can scale carefully and operate efficiently.

The businesses most likely to capture growth will be those with:

• predictable cash flow
• transparent cost structures
• efficient operational processes
• scalable funding capacity
• clear performance visibility

As the market stabilises, the key question is no longer “When will hiring recover?” but “Are we ready when it does?”

Important: This information is for educational purposes based on information correct on 8 January 2026.

Sources:

1. KPMG & REC UK Report on Jobs — permanent placements decline slowest in 18 months
2. Temporary billings returned to growth
3. Vacancies fell for 27 consecutive months
4. Candidate availability rise softest in a year
5. Starting salary inflation fastest in nearly 18 months
6. UK Services PMI Business Activity Index 54.0
7. Services new business strongest in three months
8. Services optimism highest since Oct 2024
9. Services employment declining for 16 months
10. Construction PMI 46.4 – slowest reduction for seven months
11. Housing construction index 39.3
12. Commercial construction nearing stabilisation
13. Construction optimism highest since May 2025
14. UK Consumer Sentiment Index 44.6
15. Household financial wellbeing deterioration
16. Job security concerns increased