Britain’s labour market showed signs of modest recovery in September, with both permanent and temporary hiring posting growth for the second consecutive month, according to a report by KPMG and the Recruitment and Employment Confederation (REC). The index measuring permanent placements rose to 50.9, marking its highest point in four years, while temporary billings also increased to 50.9, albeit at the slowest rate in five months. Both figures exceed the neutral threshold of 50, which signals expansion.

Despite the uptick in hiring, overall demand for workers declined last month, though the rate of contraction was the weakest since August 2024. Notably, permanent private-sector vacancies expanded for the first time in over two years, indicating cautious optimism among employers.

Jon Holt, CEO and UK senior partner at KPMG, described the data as evidence that the jobs market is “starting to flicker back to life.” However, he emphasized the recovery remains fragile amid ongoing economic challenges. Holt pointed to uncertainties surrounding energy prices and elevated borrowing costs as significant headwinds. He also highlighted the upcoming Budget announcement on October 28 as a critical moment for providing clarity on tax policy and fostering an environment conducive to investment and job creation.

Maxine Bligh, interim chief executive at REC, echoed concerns about the broader economic context, stressing that the government must focus on growth rather than mere stability. She argued that employers are seeking clear strategies that go beyond maintaining the status quo and promote expansion in the face of a challenging geopolitical landscape.

Economic analysts suggest that Chancellor John Healey’s fiscal flexibility has narrowed since March, with estimates indicating the available headroom of £23.6 billion may have been halved, partly due to the financial repercussions of the ongoing conflict in Iran. This tightening budgetary environment could necessitate spending reductions or tax increases to comply with fiscal rules.

These developments come as Prime Minister Andy Burnham has announced a series of significant spending commitments, including proposals for nationalisation, capping bus fares, and removing VAT on energy bills. Earlier in the year, Burnham also pledged measures to address the rising "cost of business," despite concerns that such efforts could lead to increased tax burdens on the private sector.

The combination of cautious labour market improvements and fiscal uncertainties underscores the complexity facing UK policymakers as they prepare for the Budget and navigate competing economic pressures.