UK businesses cut staff at fastest pace since 2021 after Budget | economics

British businesses are shedding staff at the fastest rate since the global financial crisis, according to a scrutiny criticizing the government's budget for tax hikes.

The latest snapshot of the Purchasing Managers' Index (PMI) survey monitored by the Treasury and the Bank of England showed employment levels fell in December at the fastest pace since 2009 outside of the coronavirus pandemic.

The survey of 650 manufacturers and 650 service sector companies found that a combination of slowing demand, rising employment costs and margin pressures had led to a decline in private sector employee numbers.

“After a strong expansion earlier this year, economic growth momentum has evaporated,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. PMI survey.

Businesses are reacting to rising National Insurance premiums and new regulations on staff recruitment, leading to a noticeable decline in hiring.

A clearer picture of the impact of Prime Minister Rachel Reeves' Budget on the economy will emerge on March 26 when the independent Office for Budget Responsibility (OBR) publishes its next bi-annual forecasts.

The Treasury announced on Monday that it had commissioned the OBR to produce a new set of forecasts in line with the requirements set out in law. Reeves is expected to make a statement to lawmakers with his forecast, but the next official budget will not be until the fall of 2025.

According to the PMI survey, companies widely cited growth headwinds due to weak consumer confidence, tight corporate budgets and cuts to non-essential spending. Rising wages and domestic inflation have also put pressure on businesses.

The December PMI remained unchanged from November's level at 50.5. A reading above 50 indicates growth in private sector activity across manufacturing and services.

S&P Global said December's fall in workforce numbers was the steepest since January 2021, when the previous government used the Covid furlough scheme to prevent catastrophic job losses during the global health emergency.

Official figures last week showed the UK economy shrank by 0.1% in October, underscoring the scale of the challenge Keir Starmer faces in making the UK the fastest-growing G7 economy.

Business leaders have warned Reeves that the $25 billion increase in employers' national insurance contributions from April, announced in the October budget, would force businesses to reduce hiring, curb wage growth and raise prices.

The Prime Minister said the legislation, which is the centerpiece of his £40 billion tax rise budget, was needed to repair damaged public services and plug the black hole in public finances left by the previous Conservative government.

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Shadow business secretary Andrew Griffith said the latest PMI data was shocking. He said: Just as day follows night, so does the Department of Labor's employment tax. The Prime Minister must listen to the voice of business, and workers, as well as union paymasters, will continue to suffer.

Threadneedle Street is monitoring how businesses are responding to their budgets. If companies raise prices, it could trigger inflation, forcing banks to keep interest rates high for longer. But businesses losing jobs could exacerbate the slump in the labor market, increasing pressure to cut rates.

Britain's jobs market has cooled in recent months but remains resilient, with annual wage growth hitting the highest level in decades.

The unemployment rate is expected to remain unchanged in the three months to October, according to official statistics released on Tuesday, according to a Reuters poll of economists. The annual wage increase rate excluding bonuses is also expected to rise from 4.8% to 5%.

The bank's Monetary Policy Committee (MPC) is expected to leave its benchmark interest rate unchanged at 4.75% on Thursday.

A Treasury spokesman said difficult choices were needed to restore economic stability, but added: Our commitment to business is unwavering. We have capped corporate tax at 25%, confirmed full permanent costs and are committed to working with businesses to create more growth opportunities. our country.

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