Hays, the recruitment consultancy, underlined the poor state of the economy when it revealed today that its UK and Irish business had shrunk in the last three months.

The company, which places temps and permanent employees in jobs across the economy, said that it had achieved 4 per cent like-for-like net fee growth in the group, but said it had taken 8 per cent fewer fees in its UK business than at the same time last year.

The recruiter generates most of its fees from the UK and Ireland where it has seen demand for permanent placements falling, although the temporary placement market remains stable. The company gave warning that market conditions were likely to remain "challenging" throughout the year.

"There is no doubt that many of our markets are getting tougher,” Alistair Cox, chief executive, said in a statement. "We will continue to keep a tight control on costs, focus on cash generation and react rapidly to changing market conditions," he added

Hays said that its international business, which now represents 49 per cent of the group’s net fees, and the UK public sector business both achieved strong performances, offsetting further weakness in the UK private sector market.

The company said like-for-like net fees for temporary staff were up 8 per cent during the period, while permanent placements were up just 1 per cent.

The construction and property business had a difficult quarter, reflecting the fact that most housebuilders have stopped work on new sites across the country and laid off staff in the face of a paralysed housing market.

However, the information technology business achieved modest growth.

Recruitment for City and legal jobs also suffered from a significant reduction in demand, while education, healthcare, retail and purchasing continued to perform.

Sensing an impending downturn, Hays last year shifted its resources towards its public sector clients, which has resulted in a 15 per cent growth in net fees in the quarter.

Hays reduced its UK and Ireland headcount by 7 per cent in the second half of last year and has cut another 5 per cent of jobs in the first quarter of the current year.

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