Inside Economy Q1 2026

Christian Spence, Chief Economist at Economic Analytics, has released the latest Inside the Economy report for APSCo members. Here's what this means for the UK economic market and recruitment in 2026. 

APSCo members can click below to access the full report.

Key takeaways:

UK growth: Steady but slowing 

The UK economy grew by around 1.25% in 2025. Growth has been slowing but spreading across more sectors. Professional services, scientific and technical sectors continue to lead the way. 

After years of candidate shortages, things are changing: 

• More people are entering the workforce, including those who left due to illness during COVID 

• Vacancies are returning to normal levels 

• Wage growth has cooled to around 4% 

• Unemployment will edge up slightly through 2026 

For recruiters, this means a bigger talent pool and less pressure on salaries. But it also means clients might take longer to make hiring decisions. 

Differences by sector: 

• Professional services remain strong with demand for skilled professionals remaining high. 

• Consumer-facing sectors (hospitality, retail, food services) have seen weaker recruitment levels. Job losses have been concentrated here and youth unemployment is rising in these areas. 
  

A fall in household spending: 

Even though people earned more in 2025, they haven't been spending it. Consumer confidence is low and the recent Budget in Q4 2025 will squeeze household finances further. The housing market has also softened, which affects related spending. 

This matters because weak consumer spending could ripple into hiring plans across retail, consumer marketing and B2C businesses. 

Good news on inflation rates: 

Inflation is falling fast and should hit 2% by mid-2026. The Bank of England will likely cut interest rates once or twice this year. That said, longer-term rates will stay around 4% - much higher than we got used to in the past decade. 

Budget impacts: 

The November budget brought tax rises and frozen thresholds. The employer National Insurance threshold is now frozen at £5,000 until 2031. Government spending will support some growth, but higher taxes mean businesses and households will spend less. 

What this means for UK recruitment: 

2026 looks different from the candidate-short market we've had recently. Professional services stay strong, but overall growth is modest. Recruitment organisations find it easier to source candidates, but clients may be slower to hire and more budget conscious. 

The key is understanding which sectors are growing and which are struggling. Consumer-facing businesses will face headwinds, while knowledge-based professional services remain the bright spot in the economy.