The UK jobs market has not turned a corner. It has split in two

THE RECRUITMENT-consultancy association that publishes Britain's most closely watched hiring survey recently described the latest batch of figures as showing "truly hopeful signs". Its chief executive, Neil Carberry, spoke of a long recruitment winter coming to an end. Headlines obligingly declared that UK hiring had at last turned a corner. The data tells a more complicated story. Hiring has not recovered. It has bifurcated.

The Report on Jobs, compiled monthly by the REC and KPMG from responses of roughly 400 recruitment firms, produces a diffusion index in which a reading above 50 means activity has risen compared with the previous month and below 50 means it has fallen. By that measure, permanent placements have declined for 44 consecutive months. It is the longest period of contraction since the survey began in 1997. In May the permanent placements index fell sharply to 44.1, the fastest drop since July of the previous year. The brief easing seen in March and April, when the pace of decline slowed to its weakest in three years, has evaporated.

Yet the headline about a turnaround is not entirely fabricated. It latches on to the one metric that is indeed booming: temporary billings. In May the temporary billings index rose to 52.2, its highest reading since April 2023, and the expansion continued in June at the fastest rate in over three years. Lisa Fernihough, KPMG's vice-chair for advisory, called it a "pivot to temporary work" by chief executives seeking to retain flexibility without long-term commitments. Temporary vacancies surged in blue-collar roles and engineering. Permanent hiring froze.

The divergence reveals the incentive structure behind what looks like a recovery. Businesses are not suddenly confident about the future. They are unsure. The war in the Middle East, which sent energy prices higher and added uncertainty to cost planning, made multi-year headcount decisions harder. Firms responded by hiring temporaries for discrete projects and pausing permanent recruitment. The result is a jobs market that is simultaneously expanding and contracting, depending on which slice of the data one reads.

The trouble is that temporary work is not a sustainable substitute for permanent employment. It is a bridge for businesses that cannot commit to the destination. Temporary staff do not build firm-specific skills in the same way as permanent employees. They are more likely to leave. Turnover costs money. The short-term flexibility comes at the price of long-term capability.

To be sure, the official labour-market numbers do not tell the same dramatic story as the recruitment survey. The Office for National Statistics reports that the unemployment rate edged up to 4.9% in the three months to May 2026, from 4.7% a year earlier. Payrolled employment fell by 85,000 over the same period. Vacancies, at around 712,000 in the quarter to June, are at their lowest level in five years. The picture is not of a collapsing labour market but of a quiet one: fewer roles available, fewer people seeking them, and employers who have learned to do with less.

Annual wage growth, excluding bonuses, held at 3.4% in the three months to May, according to the ONS. That is down from earlier in the cycle but above the Bank of England's 2% inflation target. With financial markets pricing in one or possibly two interest-rate hikes by the end of 2026, the central bank will be watching whether the energy price shock from the Gulf conflict translates into persistent inflation. So far it has not. But the labour market is a key transmission mechanism. If firms continue to substitute temporary workers for permanent ones, the pressure on aggregate wages may stay muted. If hiring picks up, the labour supply—which has been swelling as redundancies add to candidate pools—could tighten again.

The second-order effect that few commentators have flagged is institutional. When a significant share of the workforce shifts from permanent to temporary contracts, the tax base, pension contributions and employment protections all change shape. Temporary workers are less likely to receive defined-benefit pensions, employer-sponsored training or continuity of service rights. Over time, a labour market that relies increasingly on short-term staffing is one where the state picks up the slack through out-of-work benefits rather than through payroll-derived revenue. The fiscal arithmetic of that trade-off is not in the REC's favour.

The new prime minister, Andy Burnham, who replaced Keir Starmer in July, has promised action on youth unemployment and educational reform. Mr Carberry, for his part, urged the new government to avoid adding uncertainty, singling out proposals on guaranteed hours and national insurance contributions as counterproductive. These are disputes worth having. The bigger challenge is structural. The British economy entered 2026 with weak productivity, high public debt and a recruitment sector that had been declining for years before the war in the Middle East. Geopolitical turbulence accelerated an existing trend rather than creating a new one.

The better policy response is not to defend the current arrangement but to reduce the uncertainty that makes temporary work so attractive. That means faster permitting for energy and infrastructure, clarity on fiscal plans, and industrial policy that targets bottlenecks rather than handing out subsidies. Businesses hire permanently when they can see the next three years. The trouble is that, at the moment, few of them can.

Hiring has not turned a corner. It has learned to hedge. That is a rational response to a volatile world. But hedging is not a growth strategy.