UK bosses are weighing a brutal choice: Hire Brits, move jobs abroad, or replace workers with AI
The UK jobs market showed tentative signs of stabilisation in January 2026, according to the latest KPMG and REC UK Report on Jobs. But business leaders may face some difficult decisions in the coming months.
The data shows that permanent placements continued to decline amid weak market conditions and employer concerns over costs, but the rate of fall eased to its slowest in a year and a half. Temporary billings rose marginally, the first increase in three months and only the second since May 2024, indicating a slight expansion in short-term demand.
Vacancies fell again at a sharp rate overall, though the reduction eased to the second-slowest over the past seven months. Demand for permanent staff contracted slightly softer than in December but quicker than for temporary roles.
Starting salaries increased at the quickest pace in nearly a year and a half, driven by competition for scarce specialist skills, while temporary wage inflation hit the joint-highest rate since May 2024.
Candidate availability also rose, linked to redundancies and fewer opportunities, but at the softest rate in 12 months, with growth slowing for permanent candidates and improving more weakly for temps. Overall market confidence stayed subdued, weighed down by squeezed client budgets, yet recruiters noted emerging signs of improving hiring appetites as post-Budget uncertainty eased.
Neil Carberry, REC Chief Executive, captured the tough realities facing employers: “The decisions firms are now making involve lots of trade-offs, such as whether to create jobs in the UK or elsewhere, or which jobs need the human touch as opposed to an automated solution,” he said.
Mounting pressures
For many companies, the data underscores mounting pressures. Persistent skills shortages in specialist areas fuel rapid pay growth, making domestic hiring expensive despite local advantages in regulatory knowledge and client relationships.
At the same time, subdued confidence and cost concerns, amplified by recent policy changes, push leaders to scrutinise every role.
Offshoring offers one escape route: shifting scalable or routine functions to lower-cost locations while retaining core, client-facing work in the UK. This is an understandable consideration as immigration rules tighten and domestic overheads rise.
Automation presents the most disruptive path. Where tasks can be standardised, compliance checks, data processing, initial analysis, AI and related tools increasingly fill gaps without adding headcount. Employers are weighing the ‘human touch’ against efficiency gains, especially in areas where vacancies have fallen sharply, and candidate supply has grown.
Lisa Fernihough, Head of Advisory at KPMG UK, struck a cautiously optimistic note: “After a difficult end to last year, it’s encouraging to start this year with tentative signs that hiring appetites are beginning to improve as chief execs respond to signs of easing uncertainty by starting to push forward with their plans.
“Skills shortages in specialist areas continue to impact the market, particularly where competition for talent remains intense,” she said.
Yet Carberry warned that without stronger signals to encourage domestic job creation, unemployment risks rising further. The modest January improvements, slower permanent declines, fresh temp growth, gentler vacancy falls, signal the “wait-and-see” phase may be ending, but not yet translating into broad hiring recovery.
For UK workers, the report’s message is clear: competition for in-demand roles remains fierce, pay is climbing where skills are scarce, but overall demand stays restrained.
Employers face no easy answers – balancing local talent needs against cost, location, and technology trade-offs will define hiring in 2026 and beyond.
