The private sector in the UK has seen the fastest rate of job cuts in nearly four years, as companies react to new tax rules announced in the Budget.
The latest S&P Global Flash UK Purchasing Managers’ Index (PMI) revealed that while business confidence remained steady from November due to a slight increase in business activity, other sectors experienced a significant decline, as reported by City AM.
Manufacturing output and PMI both dropped to an 11-month low, at 45.7 (from 48.3) and 47.3 (from 48) respectively, while companies reported the steepest decrease in workforce numbers since January 2021. This reduction in UK workers was attributed to softer demand, increased employment costs, and squeezed company margins, as price pressures escalated at the fastest pace in nine months.
"Total new orders decreased for the first time in 13 months amid widespread reports of weaker business and consumer spending patterns," the report stated. The manufacturing and services sectors displayed contrasting trends, with the rate of decline in manufacturing accelerating to its quickest since January, while there was a modest rise in service sector output to 51.4.
Shadow Business Secretary Andrew Griffith labelled the figures as "shocking, but to anyone in touch with real businesses, not surprising." He called on the Chancellor to "change course."
"Firms have opted not to replace workers as rising employment costs squeeze margins and the gloomy post-budget mood continues to weigh on confidence," stated Kyle Chapman, FX markets analyst at Ballinger Group. "For sterling, the uptick in inflationary pressure and the increasingly hawkish Bank of England rate path for 2025 are outweighing the soft growth outlook."
This follows a Bank of England survey earlier this month revealing that over half of companies plan to increase prices in response to the Budget, while also reducing jobs and wages.
Concurrently, KPMG's latest report on jobs indicates that salary growth has slowed to its lowest rate since February 2021, due to an increase in redundancies and low demand for workers. "Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
"Economic growth momentum has been lost since the robust expansion seen earlier in the year, as businesses and households have responded negatively to the new Labour government’s downbeat rhetoric and policies. " He added, "Business confidence has sunk to a two-year low as companies weigh up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget. The survey’s price gauges are indicating that inflation is turning higher again."
