The deteriorating economy is beginning to inflict a toll on the jobs market, in which recruitment has fallen at its fastest rate for seven years, according to new figures.

The number of permanent jobs filled fell in August at the sharpest rate since November 2001, while temporary placements declined at a survey-record pace, according to KPMG and the Recruitment and Employment Confederation’s (REC) latest Report on Jobs.

The data, collected from recruitment consultancies, reflected the experience of Hays, the staffing company, which said yesterday that it has detected a fall in demand for permanent staff, particularly in the construction sector and in the City of London.

A growing pool of people seeking has meant that pay rose only modestly in August, according to KPMG/REC.

Hays, which yesterday reported results for its year to June 30, said that demand for permanent workers was lower than this time a year ago. The group reported a 25 per cent increase in profits overall, buoyed by its international business, but at home second-half operating profits fell 10 per cent. Full-year operating profits for the UK and the Irish Republic fell 3 per cent to £137.3 million in the year to June 30, with figures hit largely by a slowdown in the construction and property and accountancy and finance sectors.

Alistair Cox, the chief executive of Hays, which has shed staff and cut costs, said that there were “clear signs of tightening economies in the latter part of the year”.

Mr Cox said: “The market has gone from being pretty buoyant to quite tough in just six months. We are turning our resources towards the government sector, which is still growing, but it doesn’t account for the dramatic fall-off in anything to do with construction or the financial sector.”

The construction and housebuilding industry has experienced the brunt of job losses in recent months. According to industry estimates, 10,000 permanent jobs have been lost so far this year and probably as many casual jobs. Estate agents have also been hit hard.

Other industries have suffered. Several airline collapses, including those of Zoom and Silverjet, the transatlantic carriers, have led to hundreds of cabin staff losing their jobs. Yesterday 155 jobs at Dunlopillo, the pillow maker, were put at risk when Dunlop Latex Foam, its parent company, was placed in administration. In the City, UBS is in the process of shedding 900 staff, while Commerzbank is expected to cut at least a 1,000 jobs as a result of its merger with Dresdner Kleinwort.

The Centre for Economics and Business research predicted in April that the City would suffer almost 20,000 job cuts this year and next. That figure, which is due to be updated next month, is thought to have worsened because of the impact of the credit crunch on the financial services industry.

Last month, the British Chambers of Commerce said that the economic slump would lead to unemployment soaring by between 250,000 and 300,000 in the next two to three years and that total unemployment of more than two million, the same level as when Labour came to power in 1997, could not be ruled out.

The number of people claiming unemployment benefits rose at its fastest rate for 16 years in July, the latest month for which figures are available, rising by 20,100. The total number of people out of work is 1.67 million, according to official figures.

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