Recession is an “ever more likely possibility” because of a slowdown in the jobs market, according to a report for the Recruitment and Employment Confederation and KPMG.

Last month the recruitment of permanent employees grew at its weakest rate for 4½ years and the growth of temporary and contract staff placements was the slowest for nearly two years.

Alan Nolan, a director at KPMG, said: “The growth in both permanent placements and temporary demand for staff continues to slow this month. There also seems to be increasing speculation of redundancies within specific sectors, such as HR and investment banking. This speculation coupled with the ongoing uncertainties of the full impact of the credit crunch suggests that recession is an ever more likely possibility.”

Mr Nolan forecast that employers would consider redundancies or a hiring freeze to “ride out the storm”.

The report, written by NTC Economics, found that permanent staff salaries rose at the slowest rate for 20 months in December and temporary pay growth hit a 12-month low.

The demand for permanent staff rose at its slowest rate for 21 months in December to a level substantially below the average rate for the year. The permanent staff vacancy index fell from 60.2 in November to 58. A level of 50 indicates no change while anything below indicates a decline. The temporary staff vacancy index also fell - from 59.7 in November to 58.1 last month.

The report canvasses 400 recruitment consultancies across all sectors. It found that nursing and medical care staff were most in demand, followed by engineering and construction. Last year the most sought-after staff were in the accounting and financial sector, with secretarial and clerical workers in the No 2 slot. However, despite evidence of a slowdown in demand and recruitment, Helen Reynolds, the acting chief executive of the Recruitment and Employment Confederation, said that the industry remained fairly optimistic about the prospects for this year.

“Despite demand for staff slowing, and much speculation that the credit crunch is already having an adverse effect on the jobs market, the recruitment industry remains reasonably upbeat about job prospects in 2008,” Ms Reynolds said.

She said that skills continued to be a problem for employers: “With welfare reform firmly on the Government’s agenda, the key focus for 2008 must be employability.”

The report found that there was a shortage of skilled financial advisers available to take permanent positions in the finance sector. In hotel and catering, there was a shortage of chefs and catering managers. Engineering lacked engineers and, among general blue-collar work, HGV and LGV drivers were in short supply.

The report forecast that the downward trend in the unemployment claimant count was likely to “unravel” in 2008. According to the Office for National Statistics, claimants of job-seeker’s allowance fell by 11,000 to 813,000 - the lowest level since June 1975 – in the three months to October. Total unemployment, including those not claiming benefit, fell 15,000 to 1.64 million, helped by sustained job creation.

However, the report also said: “Although these figures highlight the continued robustness of the labour market in the face of a deteriorating economic outlook, the trends in unemployment and employment should at least steady or even reverse during 2008.”

It also noted that unemployment could be steadied by the return of migrant workers from Eastern Europe to their growing home economies.

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