By David Milliken

LONDON British employers concerned about the economic outlook reduced the number of workers they hired via recruitment agencies last month at the fastest pace in more than three years, an industry survey showed on Friday.

The Recruitment and Employment Confederation (REC), a trade body, said hiring of permanent staff fell by the most since June 2020, early in the COVID-19 pandemic, while spending on temporary workers dipped for the first time since July 2020.

"For now, the labour market has more slack than it has since the heights of the first lockdown," REC Chief Executive Neil Carberry said - though he added there were some signs that employer confidence might improve later this year.

REC also reported that starting salaries rose at the joint-slowest pace since March 2021, although this was still a large increase by historic standards.

Friday's figures highlight the dilemma for the Bank of England as it tries to judge if the economy is cooling enough to reduce wage growth - which was a record 7.8% in the three months to June - to a level that will allow inflation to return to its 2% target.

A BoE survey on Thursday showed employers expect to raise wages by 5% over the coming year, above the 3-4% rate typical before the pandemic, when inflation stayed close to target.

BoE Governor Andrew Bailey said on Wednesday that the BoE was near the end of its cycle of rate hikes - which have taken interest rates from 0.1% to 5.25% in less than two years - but it was too soon to know if the job was done.

A risk for the BoE is if the pandemic, Brexit and high inflation have disrupted Britain's labour market in a way that makes wages less responsive to economic downturns, meaning more unemployment than before would be needed to tame inflation.

REC said there were "widespread reports" from its members that the pool of jobseekers had been swollen by increased redundancies. The number of candidates rose in August at the second-fastest rate since December 2020.

The REC surveyed around 400 recruitment agencies between Aug. 10 and Aug. 24.

(Reporting by David Milliken; Editing by Frances Kerry)