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Date: June 7, 2026 l By Ebere Emmanuel
British employers sharply reduced permanent hiring in May as the economic fallout from the ongoing Iran war intensified cost pressures and weakened business confidence, according to a new survey by the Recruitment and Employment Confederation (REC) and KPMG. The findings point to a cooling labour market as firms grapple with rising expenses and growing uncertainty over the economic outlook.
The survey showed that permanent staff placements declined at their fastest pace since July 2025, extending a record streak of falling permanent recruitment to 44 consecutive months. Businesses cited escalating operating costs, geopolitical instability and concerns about future economic conditions as key reasons for delaying or cancelling recruitment plans.
While permanent hiring weakened, demand for temporary workers increased as employers sought greater flexibility amid uncertain market conditions. Temporary placements rose at the fastest rate since April 2023, reflecting a growing preference among companies to meet staffing needs without making long-term employment commitments.
Jon Holt, Group Chief Executive of KPMG UK, said employers were becoming increasingly cautious as both domestic and international uncertainties weighed on business decision-making. He noted that many organizations were postponing permanent recruitment while relying more heavily on temporary contracts to maintain operational flexibility.
The latest labour market data adds to mounting evidence that the Iran conflict is exerting significant pressure on the British economy. Rising energy prices, supply chain disruptions and increased transportation costs have affected businesses across multiple sectors, forcing many firms to reassess spending and investment plans.
The report also found that the number of job vacancies continued to decline, with permanent vacancies falling more sharply than temporary openings. Retail businesses experienced some of the steepest reductions in hiring demand, highlighting the broader impact of slowing consumer activity and rising business costs.
Recent economic indicators have painted a similarly challenging picture. Britain's services sector recorded its first contraction in more than a year during May, while construction activity suffered its sharpest decline since 2020. Analysts have linked much of the downturn to inflationary pressures stemming from higher energy and transportation costs triggered by the conflict in the Middle East.
Despite the slowdown, the increase in available job candidates suggests that labour shortages may be easing. However, economists warn that prolonged weakness in hiring could undermine consumer spending and broader economic growth if business confidence fails to recover in the coming months.
With uncertainty surrounding energy markets and geopolitical developments persisting, many employers are expected to remain cautious. Industry groups have urged policymakers to monitor the situation closely and consider measures that could help businesses cope with rising costs while supporting employment and investment across the UK economy.