Firms are cutting jobs at the fastest rate in the four years following the federal tax hike
Businesses shed jobs at the fastest pace in four years last month after higher employment costs and growing uncertainty from a disappointing autumn budget, according to the latest S&P Global data.
Despite the pandemic-era numbers, the decline was the biggest in more than 15 years, with nearly a quarter of firms laying off workers or freezing hiring.
The well-watched final purchasing managers’ index (PMI) fell to 50.4 in December from 50.5 in November, just over the 50 points that separate expansion from contraction. This was slightly below analysts’ forecasts and the lowest reading since October 2023.
Chancellor Rachel Reeves’ tax reforms, announced in October, have had the effect of reducing employment. Employers’ national insurance contributions (NICs) rose from 13.8% to 15%, while the tax threshold was reduced from £9,100 to £5,000 – a combined £25 billion increase for businesses.
Thomas Pugh, economist at RSM UK, said the decline in private sector job creation was “a clear sign, however, that firms are responding to rising labor costs by cutting back on hiring”.
Tim Moore, director of economics at S&P Global Market Intelligence, noted that continued concerns about “rising labor costs” and “dissatisfaction with the state of business investment” weigh on 2025.
Despite the gloom, economists are predicting strong economic growth in the first half of this year as government spending rises and the Bank of England is expected to cut interest rates from 4.75%. The KPMG report predicts UK economic growth will double to 1.7% by 2025.
However, the Bank of England recently revised its forecast for GDP growth in the last quarter to 0%—pointing to a freeze at the end of last year.
Although the services PMI index came to 51.1 in December from 50.8, it missed the consensus estimate of 51.4 and was revised down from the first flash reading. Researchers attributed the highest price increase in six months to higher wage bills and rising raw material costs.
Consumer inflation rose from 2.3% to 2.6% in November, and with services inflation remaining at 5%, the Bank of England will be watching closely before deciding whether to cut rates.
