The UK jobs market sent mixed signals in October, according to a closely watched survey of recruiters. Permanent placements fell, but starting salaries for new hires rose at a faster clip — a combination that keeps the Bank of England's inflation battle complicated.
The latest REC-KPMG Report on Jobs showed that permanent staff placements dropped to a reading of 46.6 in October, down from 50.9 in September. Any reading below 50 signals contraction, so the drop indicates that employers are adding fewer permanent workers. Temporary billings also slipped below the 50 mark, pointing to softer demand for short-term staff as well.
At the same time, recruiters reported that candidate availability improved, meaning more people are looking for work. That usually gives employers more choice and should ease upward pressure on pay. But the survey found the opposite: starting salaries for permanent roles rose faster in October than in the previous month.
Why pay keeps rising even as hiring cools
It may seem contradictory that pay is climbing while hiring slows. But the labour market often lags changes in economic activity. Employers may be cutting back on the number of new roles they create while still competing hard for the workers they do need, especially in sectors with skills shortages.
The Bank of England has raised its key interest rate to 4% in an effort to cool inflation, which remains well above its 2% target. Higher rates are meant to slow demand across the economy, including in the jobs market. The cooling in hiring suggests that policy is starting to bite. But the persistence of pay growth is a warning sign that inflationary pressures may not be easing as quickly as hoped.
Wages are a major driver of inflation in services, which is a big part of the UK economy. When employers pay more, they often pass those costs on to customers through higher prices. That can keep inflation elevated even as other parts of the economy slow.
What the survey numbers mean
The REC-KPMG survey is based on responses from recruitment firms across the UK. It is not an official government statistic, but it is widely watched by economists and policymakers as an early read on labour market trends.
The index for permanent placements fell from 50.9 to 46.6, a notable drop. A reading below 50 means that more recruiters reported a decline in placements than an increase. The temporary billings index also fell below 50, indicating a slowdown in temp hiring.
Candidate availability improved, which suggests that more people are actively looking for jobs. That could be because some workers who had been sitting on the sidelines are now re-entering the market, or because layoffs are starting to pick up in some sectors. Either way, a larger pool of available workers usually gives employers more bargaining power.
Yet starting salaries for permanent roles rose faster, according to the survey. This suggests that while the overall number of hires is shrinking, the hires that are happening are still commanding higher pay. That could reflect a mismatch between the skills employers need and the skills available in the job market.
What it means for investors
For everyday investors, the key takeaway is that the UK economy is still dealing with a tricky inflation problem. The Bank of England has raised rates aggressively to bring inflation down, and the cooling in hiring is a sign that its medicine is working. But the persistence of pay growth means the central bank may need to keep rates higher for longer than markets currently expect.
That has implications for a range of investments. Higher interest rates tend to weigh on stock valuations, particularly for growth companies that rely on future earnings. They also push up borrowing costs for mortgages and business loans, which can slow consumer spending and corporate investment.
On the other hand, if the labour market continues to cool and pay growth eventually fades, that could open the door for the Bank of England to start cutting rates later in 2025. That would be a more positive backdrop for stocks and bonds.
Investors should also keep an eye on official jobs data, which will provide a more complete picture. The survey is a useful early signal, but it is not the final word.
The broader picture
The UK is not alone in facing this dilemma. In the United States, hiring beat forecasts in October while unemployment dipped to 4.1%, and strong jobs data has revived odds of another Fed rate hike. Meanwhile, Canada's job market slipped in October as unemployment hit 6.7%. These divergent trends show that central banks around the world are wrestling with the same challenge: how to cool inflation without tipping their economies into recession.
For UK investors, the message is to stay diversified and be prepared for continued volatility. The jobs market is a key indicator to watch, because it influences everything from consumer spending to corporate profits to interest rates. As long as pay pressures persist, the Bank of England is likely to remain cautious, and that caution will ripple through markets.
