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The latest quarterly CIPD/ KPMG Labour Market Outlook survey of 1221 UK employers shows employment prospects weaker than at any time since the survey began in 2004, with recruitment activity falling and redundancies set to increase.

The findings of the survey have been dubbed as particularly worrying given that the third quarter is normally the most buoyant for recruitment, as it covers the September wave of recruitment activity.

Although the survey finds that more than one in four, or 29 per cent of employers expect to increase staff levels in the third quarter this represents a sharp drop from 37 per cent in the second quarter and is by far the lowest third quarter Labour Market Outlook figure recorded since 2004.

The number of employers planning redundancies increased from 22 per cent to 27 per cent between the second and third quarter, according to the Labour Market Outlook.

Pay expectations remain modest despite higher price inflation. Employers carrying out staff pay reviews in the third quarter expect average increases of 3.7 per cent – 3.9 per cent when bonus payments are included.

John Philpott, chief economist for the Chartered Institute of Personnel and Development, said: “The jobs market has been one of the few bright spots in the UK economy, but cracks are appearing in the face of an increasingly uncertain economic outlook.

“Even if we avoid the scale of jobs fallout suffered in previous downturns, the era of the candidate’s recruitment market is already over, with people in work becoming increasingly anxious that their P45 might soon be on its way. With pay pressure still subdued, mounting job insecurity is being compounded by a significant squeeze on workers’ real incomes.”

Andrew Smith, chief economist for KPMG, said: “Companies are now reacting to deteriorating conditions. With sales slowing and input costs rising – but scope to raise prices limited by weakening demand – finances are under pressure.

“It looks as if employment costs, the main area over which businesses retain control, are taking the strain with employers seeking both to keep a lid on pay settlements and, in increasing numbers, planning for redundancies. The labour market is suddenly looking a lot less resilient.”