UK private sector employment falls at fastest rate since 2021

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British businesses are shedding staff at the fastest rate since the pandemic, according to a closely watched survey highlighting the impact of Rachel Reeves' tax hike budget.

According to the S&P Global Flash UK Purchasing Managers Employment Index, private sector employment fell more significantly in December than in any month since January 2021.

The index fell from 48.9 in November to 45.8. It was the third straight month it was below the key 50 mark and the lowest since 2009, excluding the pandemic.

A number below 50 indicates that most companies are reducing headcount.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: Businesses are responding to rising national insurance premiums and new regulations on staff recruitment, which are leading to a significant reduction in hiring, resulting in 12% of staffing. Monthly employment fell at the fastest rate since the global financial crisis. The 2009 crisis, excluding the pandemic.

Another setback for the British prime minister was that manufacturers' confidence in the economy also fell at its sharpest pace since the pandemic in the last quarter, according to separate figures released on Monday.

In his autumn budget, which included a £40 billion rise in taxes, Reeves announced a £25 billion rise in employer national insurance contributions from April 2025.

Businesses will start paying NICs on employee earnings at 5,000 rather than the current standard of 9,100, and the rate will increase by 1.2 percentage points to 15%.

Reeves, who has pledged to create Britain's most growth-friendly Treasury, defended the policy. But critics accused her of undermining business confidence, and many companies said the move could hurt hiring and lead to higher prices.

The index tracking manufacturers' confidence in the economy fell from 6.8 to 5.8 in the final quarter, the biggest quarter-on-quarter decline since the spring of 2020, according to data released on Monday by trade group Make UK.

Official figures released last week showed the UK economy shrank 0.1% in October for the second consecutive month, marking a sluggish start to the final quarter after strong growth in the first half of the year.

According to the Office for National Statistics, growth slowed to 0.1% in the three months to September from 0.5% in the previous three months.

A PMI survey on Monday found wage increases contributed to the biggest increase in input costs since April.

The average price charged by private sector businesses has risen at the fastest pace in nine months, which will cause concern for Bank of England policymakers when they meet to vote on interest rates this week.

December flash PMI shows businesses absorbing the payroll tax increase in the October 30 budget by cutting hiring and raising prices. The latter will be of particular interest to the Monetary Policy Committee, said Elliott Jordan-Doak, a consultant at Pantheon Macroeconomics.

Markets expect the BoE to keep interest rates unchanged at 4.75% on Thursday, after cutting rates by 4.75% in November and August.

BoE Governor Andrew Bailey told the Financial Times this month that responding to higher NICs was the biggest issue since the Budget. He added that an important judgment for us is how a company balances considerations of price, wages, employment levels and margins.

The PMI survey also found that expectations for business activity over the next 12 months fell to a two-year low in December as companies consider a tougher outlook for sales along with rising costs, especially for employees. .

The employment index and expectations index, both part of the headline PMI composite index, were unchanged from November's reading of 50.5. Williamson said the numbers suggest the economy stalled somewhat in the fourth quarter.

But he added that as we head into the new year, the situation is likely to get worse due to falling confidence and headcount cuts.

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