London firms are bracing for the impact of April’s national insurance hike, new data shows, with recruitment activity continuing to fall at the start of the year.
Permanent placements made by recruitment firms fell for the sixth consecutive month in January, according to a survey from KPMG and the Recruitment and Employment Confederation (REC).
The permanent placements index stood at 42.9 last month, well below the 50 mark which separates growth from contraction.
The index for temporary roles in the capital fell to 38.6, its lowest level since April 2024.
Anna Purchas, senior partner in KPMG UK’s London office, said: “It’s been a challenging start to the year for recruitment in London, with January seeing both permanent and temporary appointments continuing to fall.”
The survey points to the impact of the government’s national insurance hike on the labour market as well as the upcoming overhaul of workers’ rights.
“Some employers are hesitant to invest due to economic uncertainty, recent changes to national insurance, and planned employment rights legislation,” Neil Carberry, chief executive of the REC said.
Alongside weaker recruitment activity, the survey pointed to a growing pool of available staff for both permanent and temporary roles.
This reflected both firms’ unwillingness to take on new members of staff and reports of redundancies, as businesses look to maintain their margins in the face of higher taxes.
With more candidates going after fewer roles, the survey reported easing rates of pay growth.
“The upcoming hike in national insurance has taken a bite out of the labour market, with many firms thinking twice about hiring,” Muniya Barua, deputy chief executive at BusinessLDN, said.
There’s unlikely to be much improvement in the coming quarter either, with a majority (56 per cent) of recruitment firms expecting to see the number of permanent placements remain unchanged.