Permanent hiring falls as temporary work rises

UK employers are shifting further toward temporary workers as permanent hiring weakens, with companies protecting flexibility while cost pressure, subdued demand, and economic uncertainty weigh on recruitment plans.

The latest Report on Jobs from KPMG and the Recruitment & Employment Confederation showed permanent placements falling at their fastest rate since July 2025. The permanent placements index dropped to 44.1 in May from 47.5 in April, its weakest reading in 10 months.

Temporary hiring moved in the opposite direction. The temporary staff placements index rose to 52.2 from 50.4, reaching its highest level since May 2023 as employers looked for more flexible staffing options.

The labour market is still functioning, but the data shows growing caution. Companies are continuing to hire where demand requires it, although many are avoiding long-term commitments while operating costs, tax changes, geopolitical risk, and softer growth cloud planning assumptions.

Regional releases compiled by S&P Global show how uneven the picture has become. London recorded a renewed fall in permanent placements in May, ending a two-month sequence of growth, while temp billings rose for the first time in six months. The South of England saw short-term hiring rise at the fastest rate in three years, while permanent placements continued to fall at a marked pace.

The Midlands recorded another steep fall in permanent appointments, with higher business costs and uncertainty dampening hiring activity. The North of England was the outlier, registering a fourth consecutive monthly increase in permanent staff appointments, although growth slowed and demand for permanent staff weakened. Temporary billings also increased in the region for the first time in seven months.

Recruiters linked the rise in candidate availability to redundancies and weaker vacancy levels. That combination reduces pressure on pay in parts of the market, even though employers in sectors such as technology, engineering, health, finance, and specialist professional services continue to compete for scarce skills.

The shift follows broader signs of economic fragility. The UK services sector contracted in May for the first time since April 2025, with output, new work, hiring, and confidence weakening. The OECD has also forecast subdued UK growth this year, with unemployment expected to rise and business investment under pressure.

Temporary staffing can be a rational response to that environment. It allows employers to meet immediate demand, manage seasonal or project-based work, and preserve optionality if orders weaken. It can also help companies avoid overcommitting to permanent headcount when wage costs, national insurance, compliance obligations, and employment reform remain under board-level scrutiny.

Yet a prolonged period of caution can create its own drag. If permanent recruitment is deferred for too long, entry-level routes narrow, workforce planning weakens, and internal capability becomes harder to rebuild when demand returns. Temporary labour can keep operations moving, but it does not always provide the same foundation for training, succession, institutional knowledge, or long-term culture.

That tension is particularly acute in sectors already dealing with skills shortages. Health, care, engineering, technology, finance, and specialist professional services may need labour flexibility, but they also depend on steady pipelines of permanent talent. A sustained preference for temporary hiring may support near-term cost control while leaving future capability exposed.

Policy changes are also shaping behaviour. Employment rights reforms, proposed changes to zero-hours arrangements, and higher labour costs are being assessed through the same lens as demand uncertainty. Recruiters and employers are likely to push for regulation that protects workers while preserving access to legitimate temporary and contract labour.

The data points to a more complex workforce model. Headcount planning is no longer a simple choice between hiring and freezing. Companies are blending permanent roles, contractors, temporary staff, automation, offshoring, and outsourced services to manage volatility. That model can make organisations more resilient, but it also requires sharper workforce governance: who holds knowledge, how quality is maintained, where accountability sits, and how temporary capacity fits into longer-term strategy.

Candidate availability is rising, vacancies are softer, and employers are using temporary staff to retain room for manoeuvre. The next test is whether flexibility helps companies bridge a period of uncertainty or whether weak permanent hiring becomes another drag on productivity, training, and confidence.