UK Job Market Weakens as Redundancies Rise and Pay Growth Slows
- UK businesses reduced their workforce at the fastest pace of 2026 during March, as employers resisted significant pay increases and the economic impact of the Gulf Conflict intensified.
- The data suggests the UK jobs market has become increasingly exposed to the damaging effects of the war in Iran, with the economic consequences trickling through to various...
- While the permanent placements index, which tracks full-time roles, showed a slight improvement in March 2026 compared to February 2026, the overall trend continues to point toward a...
UK businesses reduced their workforce at the fastest pace of 2026 during March, as employers resisted significant pay increases and the economic impact of the Gulf Conflict intensified. Research from the Recruitment and Employment Confederation (REC) and KPMG indicates a steep rise in the number of job seekers throughout March 2026, driven by increased redundancies and a general scarcity of available roles.
The data suggests the UK jobs market has become increasingly exposed to the damaging effects of the war in Iran, with the economic consequences trickling through to various sectors. Analysts noted that high street stores were among the worst affected, with the retail and hospitality sectors struggling under the pressure of high labour costs and softer demand from consumers.
Labour Market Trends and Vacancies
While the permanent placements index, which tracks full-time roles, showed a slight improvement in March 2026 compared to February 2026, the overall trend continues to point toward a decline in total jobs. Vacancy numbers have dropped across both the private and public sectors, contributing to a sustained weakening of the labour market.
Temporary recruitment also experienced a decline during March 2026. This follows a broader trend of instability; by the final three months of 2025, the Office for National Statistics (ONS) reported that the UK unemployment rate had hit 5.2%, the highest level in nearly five years.
The impact on younger workers has been particularly severe. According to ONS data released on February 16, 2026, the unemployment rate for individuals aged 16 to 24 reached 16.1%, the highest figure in more than a decade. For those aged 25 to 34, the unemployment rate sat at 4.7%, its highest point since 2017.
Slowing Wage Growth and Inflation
Alongside job cuts, the rate of pay growth has slowed. Data collected by the REC and KPMG showed that starting salaries increased at the weakest rate in five months during March 2026. This aligns with earlier figures from February 16, 2026, which showed average pay growth had slowed to 4.2%, down from a revised 4.4% in the three months ending in November 2025.
Bank of England rate-setters closely monitor these wage levels to prevent a spiralling effect where higher wages drive further price growth and inflation. However, the current environment of weakened demand and rising unemployment may strengthen the case for interest rate cuts to reduce costs for businesses and households.
Bank of England Governor Andrew Bailey previously indicated that larger cuts to interest rates could be implemented if the jobs market continued to show signs of slowing. In July 2025, Yael Selfin, chief economist at KPMG UK, suggested that slowing pay growth would open the door for rate cuts.
Business Outlook and Government Response
REC chief executive Neil Carberry stated that the Labour government’s focus on the cost of living could be further supported by addressing the rising cost of doing business
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The Gulf Conflict provided a headwind to hiring in March but this did not stop the trend of stabilisation that has defined 2026 so far. Business prospects for 2026 remain finely balanced, and confidence will be key. Households and businesses are still sitting on cash that might be put to work in the economy if the climate is right, boosting growth and particularly helping struggling consumer-facing sectors.
Neil Carberry, REC chief executive
The current economic climate has been further complicated by previous policy changes. Analysts have noted that the rise in employer National Insurance contributions (NICs) in April 2025 discouraged many firms from hiring. For example, some hospitality business owners have reported cutting staffing hours and reducing opening times to manage these increased costs.
While the government has highlighted that 381,000 more people were in work since the start of 2025, official data continues to show weak hiring activity and a growing number of people actively seeking employment amidst a decline in available vacancies.