The Bank of Canada Turns Hawkish: What a Rate Hike Means for Staffing Firms and Their Clients

The first increase in more than three years arrives as the job market weakens, setting up a difficult mix of rising costs and soft demand.

On October 28, the Bank of Canada raised its policy interest rate by 25 basis points to 2.5%, its first increase since July 2023. The move ended a run of seven consecutive holds at 2.25% that began when the easing cycle wrapped up in October 2025.

Why now

The Bank said inflation has proven higher and more persistent than it projected in July. Governing Council acted to reduce the risk that elevated energy prices spread into other goods and services. Consumer price inflation has run near 3% since April, and the Bank expects it to reach roughly 3.5% by year-end. Persistently high oil prices are raising production and transportation costs across the economy. They are linked to a Middle East conflict now in its eighth month with no clear resolution.

Underlying inflation tells a calmer story. Excluding gasoline, inflation was 2.2% in September, and the Bank’s core measures remain near 2%. The concern is about what comes next. Businesses have mostly absorbed higher costs so far, but the Bank expects them to pass more of those costs on over the coming year. It projects CPI inflation to average 3% in 2027 and return to the 2% target around mid-2028.

A hike into a softening job market

What makes this decision unusual is the labour market backdrop. The Bank acknowledged that unemployment has hovered around 6.5% for several months and that broad indicators still point to excess supply. October’s jobs report, released after the decision, put the rate at 6.7%. The Bank forecasts GDP growth of just 1% in 2026. It expects new U.S. tariffs to slow activity in the fourth quarter, followed by a rebound to 2% growth in 2027 and 2028.

Central banks rarely tighten while unemployment is rising. For staffing, that combination matters in three ways.

1. Client caution deepens

Higher borrowing costs raise the bar for expansion projects. On top of tariff uncertainty, they make mid-market clients in manufacturing, distribution and construction-linked sectors more likely to delay permanent hires. Historically, that kind of hesitation has favoured flexible labour: firms that need capacity but cannot commit to headcount turn to temp and contract workers. The risk is that the same caution trims overall volumes faster than the shift toward flexibility can offset.

2. Working capital gets more expensive

Staffing is a working-capital business. Firms pay workers weekly or biweekly while clients pay on 30, 45 or 60 day terms. Most mid-sized firms finance that gap through revolving credit or receivables facilities priced off prime, so a higher policy rate flows straight into interest expense. When clients are under pressure, days sales outstanding also tend to stretch, adding to the cost. Finance teams should stress-test their borrowing base and revisit payment terms on their largest accounts now, before the next decision.