UK companies are cutting jobs at the fastest rate in almost four years.

Monday, December 16, 2024 10:30 AM | Updated: Monday, December 16, 2024 11:45 AM

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The private sector cut jobs at the fastest pace in nearly four years in December as companies reacted to new tax rules announced in the Budget.

The latest S&P Global Flash UK Purchasing Managers' Index (PMI) showed that while the headline figure for business confidence was unchanged from November, with a slight increase in business activity, other sectors of the economy saw sharp declines.

Manufacturing output and PMI both fell to 11-month lows, at 45.7 (from 48.3) and 47.3 (from 48), respectively, and companies reported their sharpest workforce reductions since January 2021.

The decline in UK workers has been attributed to a combination of lower demand, higher employment costs and pressure on corporate margins. That's because price pressures increased at the fastest pace in nine months.

“Total new orders fell for the first time in 13 months amid widespread reports of weakening business and consumer spending patterns,” the report said.

There was a clear difference in trends between the manufacturing and service industries, with the manufacturing decline rate accelerating at the fastest rate since January, and service industry production increased slightly to 51.4.

Shadow Business Secretary Andrew Griffith described the figures as “shocking but not surprising to anyone working in real business”. He urged the prime minister to “change course”.

Read more Budget tax hikes send business confidence down to two-year low, survey shows

“As rising employment costs squeeze margins and post-Budget gloom continues to weigh on confidence, companies are choosing not to replace workers,” said Kyle Chapman, FX markets analyst at Ballinger Group.

“For the pound, rising inflationary pressures and the Bank of England’s hawkish interest rate path in 2025 are more important than the outlook for slower growth.”

The news follows a Bank of England survey earlier this month that found more than half of businesses were planning to cut jobs and salaries while also raising prices in response to the budget.

Meanwhile, KPMG's latest jobs report found that wage growth has reached its slowest pace since February 2021, as rising layoffs and lower demand for workers put pressure on private sector wages.

“Businesses are facing a triple whammy of grim news as 2024 draws to a close: economic growth is stagnating, employment is sluggish and inflation is rising again,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. said.

Economic growth momentum following a strong economic expansion earlier this year has evaporated as businesses and households react negatively to the new Labor government's pessimistic rhetoric and policies.

“Business confidence has fallen to a two-year low as businesses face more difficult revenue prospects along with rising costs, particularly due to the changes announced in the Budget. Survey price indicators suggest inflation is rising again.”

Read more Manufacturing activity falls to nine-month low after budget Similar tagged content: Sections Categories People & Organizations Related Topics

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