The sharp fall in vacancies is pushing down pay, according to recruitment consultants.

A survey of recruitment consultants from the Recruitment and Employment Confederation (REC) and accountants KPMG found demand for both temporary and permanent staff was sharply down in December.

A record 62 per cent of respondents reported a decrease in the number of permanent placements compared to last year.

The jobs vacancies index also fell to a record low of 29.5 in December – a figure below 50 signals a contraction – and fell at a faster pace compared to previous months.

Average salaries for those placed in permanent jobs fell for a third month in a row in December, as the large pool of candidates gave employers increased bargaining power.

The fall in salaries raises the possibility of deflation this year, which could prompt the Bank of England to make further sharp cuts to the interest rate when the monetary policy committee (MPC) meets this week.

Mike Stevens, partner and head of business services at KPMG, said: “These latest figures only serve to confirm the most pessimistic projections for the UK jobs market.”

Mr Stevens also warned employers may have been waiting for the end of the year to make further job cuts as the cost of redundancies would have been higher than the savings from salaries over the short period.

Unemployment is forecast to rise this year as the UK enters a recession, with some predicting the jobless rate to peak next year at around three million.