The recruitment market continues to show healthy expansion, but tougher times may lie ahead after one of the worst months for British industry and retail in recent years.

Strong demand for staff and a shortage of candidates contributed to strong pay inflation, with starting salaries for permanent staff showing their sharpest rise in seven months.

Figures from April showed the manufacturing sector had the largest drop in staffing levels for two years, and comes after the recent collapse of MG Rover, imminent job losses at Marconi and IBM, and ABN-Amro's prediction of 500,000 redundancies over the next three years.

New economic data also revealed that first-quarter industrial output fell to its weakest point in nine years.

The retail sector is also suffering, with most high-street chains fearing job cuts may be necessary unless consumer spending picks up.

Head of communications at Manpower Ruth Hounslow added that the labour market is still strong, but recruiters may have to face the prospect of growing wage inflation as the labour market tightens.

"In this situation, it's imperative for employers to carefully consider their recruitment and retention strategies," said Hounslow.

Jo Bond, managing director of career management firm RightCoutts, believes the market could take a downturn soon.

"Business confidence is not going to be strong next year," said Bond. "Companies are not expanding their business. There will be several situations where organisations will reduce their workforce in the UK."

The latest REC Report on Jobs found permanent placements and temporary billings continued to rise in April, though the rate of demand growth slowed to a 16-month low.