UK firms cut jobs as pay growth slows

Businesses have been reducing jobs at an unprecedented rate in 2026, as employers refrained from granting significant pay increases in March, according to recent research. The findings highlight the adverse impact of the Iran war across the UK economy.

Research conducted by the Recruitment and Employment Confederation (REC) and KPMG revealed a significant increase in the number of job seekers in March. This rise in candidate availability was attributed to higher redundancy rates and a general scarcity of jobs, leaving the UK job market vulnerable to the ongoing conflict’s repercussions.

Analysts noted that high street stores were among the hardest hit, with retail and hospitality sectors facing challenges from increased labour costs and diminished consumer demand. The permanent placements index, which tracks full-time employment, showed a slight improvement from the previous month but continued to indicate a decline in job numbers. Temporary recruitment also decreased at a slower rate than in March, while vacancies dropped in both private and public sectors.

Jobs figures for March may present a dilemma for economists and policymakers, as data did not show a significant deviation from existing trends. Concerns persist that disruptions in Middle Eastern trade could further unsettle businesses in the coming months, with the job market already suffering from higher unemployment and a sustained drop in vacancies.

REC chief executive Neil Carberry stated, “The Gulf Conflict provided a headwind to hiring in March but did not stop the stabilisation trend defining 2026 so far.” He emphasised that business prospects remain finely balanced, with confidence being crucial. Households and businesses are holding cash that could potentially stimulate the economy if conditions improve, particularly aiding consumer-facing sectors.

Data from REC and KPMG also indicated that starting salaries increased at the weakest rate in five months, signalling a slowdown in pay growth. The Bank of England closely monitors pay growth levels due to concerns that higher inflation could lead to increased wages, creating a spiralling effect on price growth. Weakened demand from rising unemployment and recession risks could also support arguments for interest rate cuts to ease costs for households and businesses.