December's Report on Jobs, from the Recruitment and Employment Confederation and KPMG, signalled that permanent staff appointments rose at the slowest rate in fifty-four months, while temp billings increased at the weakest pace for 20 months.

Pay inflation moderated further, reflecting slowing growth of demand for staff and easing skill shortages.

The Report on Jobs, published by the Recruitment & Employment Confederation and KPMG, provides the most comprehensive guide to the UK labour market, drawing on original survey data provided by recruitment consultancies and employers.

Simon Jones, senior partner at KPMG's Cardiff office, said: "As the full impact of the credit crunch on the economy is still uncertain, businesses are becoming more cautious. Thus, the growth in both permanent placements and temporary demand for staff continued to slow last month.

"There is even speculation of redundancies within specific sectors such as HR and investment banking. In the coming months, employers will be reviewing resourcing requirements and either considering redundancies or maintaining a flat headcount as a way of riding out the storm."

Helen Reynolds, acting chief executive officer, Recruitment and Employment Confederation said: "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.

"On a general level, there are still other drivers for the demand for staff. Factors such as the imminent change in workforce demographics and the need to replace retiring employees will mean employers will need to rely on temporary and permanent employees to meet resourcing challenges, keeping the labour market buoyant.

"Skills shortages remain a challenge.With welfare reform firmly on the government's agenda, the key focus for 2008 must be employability.

"It's about matching the right skills to the right jobs and it's crucial that employers and the government utilise the experience and expertise of the private recruitment industry to help make this a reality."

Recruitment consultancies signalled weaker increases in permanent and temporary/contract job vacancies in December, with the latest expansions the slowest for 21 and four months respectively.