The slowdown in the UK economy is having an impact on recruitment, and as many as 4,250 agency jobs are set to go in the next year, according to a study from Plimsoll Publishing.

David Pattison, a senior analyst told Recruiter: "Recruitment agencies are excellent at their own PR. They are keen to say the market is buoyant and there's a war for talent, but the industry is entering a difficult part of the cycle, and 653 of the companies in the study have suffered a fall in their overall financial strength."

Of the 15,400 companies in the study, Plimsoll found 630 will need to reduce staff next year to stay competitive, for two main reason: 35 businesses in the sector are showing declining sales, and salaries are becoming a disproportionate percentage of overall costs.

Average sales growth is declining, at just 8% this year, compared with 11.6% last year, and 10% the year before. The bulk of this growth is at large companies, which saw average sales rise 11.7% this year. Smaller companies saw sales fall 1.7% - the first absolute fall in sales in any segment of the recruitment sector in the past decade.

Across the board almost one in three firms recorded a fall in sales, with an average drop of 18%, while the remaining two- thirds grew on average by 20%.

Meanwhile, salaries are rising, and are projected to increase another 4% to an average of £31,900 next year, which will make 42 companies unsustainable - according to Plimsoll.

Pattison said: "Companies have to keep wary of productivity, to keep competitiveness in the business. As the market slows towards the end of 2007 and the start of 2008, companies will use the time to focus on costs."

He added that redundancies were not always a negative sign for an industy. "The recruitment game is changing, and keeping your business lean is a very healthy thing.

"Obviously it's bad news for individuals made redundant, but job losses can make a company stronger for the future, and can provide opportunities for those left behind."