Britain’s labor market is “wobbly” amid weak hiring demand, with only limited signs of recovery, data reveals.
Companies remain cautious about hiring amid cost pressures and economic uncertainty, according to two reports released Monday. They show that the labor market remains in a fragile position.
A monthly employment index from BDO, an accounting and consulting firm, is at its weakest level in nearly 15 years. It has had its worst reading since March 2011, when the labor market was still recovering from the financial crisis.
The index, which tracks trends in hiring intentions, headcount and labor demand, was 93.30 in February, the same as in January, continuing a streak of multi-year lows. Any number above 95 represents growth and any number below shows contraction.
“While the pace of decline in the employment rate has stabilized since the beginning of the year, there are limited signs of a significant recovery in the near term,” the report says.
The survey aligns with official figures which showed UK unemployment rose to a five-year high of 5.2% in the final quarter of 2025 and a nearly 11-year high for young people. The Office for Budget Responsibility said last week that unemployment would peak at 5.3% this year, up from its November forecast of 4.9%. He said the increase was due to companies reducing hiring rather than laying off staff, which had a greater impact on young people entering the workforce.
BDO also reported that its business output index, which measures activity in the main sectors of the British economy, rose to its highest level in a year. It rose to 98.80 in February, up from 97.67 the previous month, largely driven by a more buoyant services sector. The increase marked three consecutive months of recovery.
However, Scott Knight, head of growth at BDO, said: “The global disruption puts the spotlight firmly on the economy. While momentum is building in pockets of the economy, real growth is impossible without targeted action to fix the faltering labor market.”
Similarly, a report from KPMG and the Recruitment and Employment Confederation (REC) indicated that demand for permanent hires and temporary workers continued to fall in February, although there were some signs of stabilization.
It found that permanent staff hires were still falling, but the decline was the lowest since March 2023. While some recruiters said overall hiring conditions remained moderate, others noted a slight improvement in employers’ willingness to hire staff.
Jon Holt, chief executive of KPMG UK, said businesses were again facing “unexpected economic shocks due to global events beyond their control” as a result of the crisis in the Middle East. “Resilience is now the new normal, so we are likely to see these signs of recovery stall again in the near term as chief executives take stock,” he said.
The survey showed that engineering was the only sector to see an improvement in demand for permanent staff during February. Commerce and hospitality experienced the largest reductions in permanent vacancies. Retail trade also showed the biggest drop in job postings for temporary workers.
Neil Carberry, chief executive of the REC, said: “Real change requires growing trust between businesses and consumers. There is money in the system to spend if consumers and businesses feel better; a central policy aim should be to address this by reducing the cost of doing business, which in turn will address the rising cost of living.”
