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British companies are cutting staff numbers at the fastest rate since the pandemic, according to a closely watched survey that highlights the impact of Rachel Reeves' tax hike budget.
Private sector employment in December fell by more than in any month since January 2021, according to the S&P Global flash UK PMI.
The index fell to 45.8, down from 48.9 in November. It was below the key 50 mark for the third straight month and the lowest since 2009 if the pandemic is excluded.
Any reading below 50 indicates that the majority of companies are reducing the number of their employees.
“Businesses are responding to the increase in National Insurance contributions and new employment regulations with a marked decline in hiring, causing employment to fall in December at the fastest rate since the global crisis,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “The financial crisis of 2009 if the pandemic is excluded.”
In another setback for the British Chancellor, separate figures published on Monday indicated that manufacturers… Confidence in the economy has also declined At the largest rate since the pandemic in the last quarter.
In its fall budgetwhich raised taxes by £40 billion, Reeves announced a £25 billion increase in employers' National Insurance contributions from April 2025.
Businesses will start paying NICs on employees' earnings starting at £5,000, instead of the current limit of £9,100, and the rate will rise by 1.2 percentage points to 15 per cent.
Reeves, who has pledged to deliver pledges to Britain's most “pro-growth” Treasury, has defended the policy. But critics accused it of undermining business confidence, and many companies said the measure would hurt employment and could lead to higher prices.
An index of manufacturers' confidence in the economy fell to 5.8 in the latest quarter from 6.8, the biggest quarter-on-quarter decline since spring 2020, data published by trade group Make UK on Monday showed.
Official figures published last week showed the UK economy contracted by 0.1 per cent for two straight months in October, signaling a weak start to the final quarter after strong growth in the first half of this year.
Growth slowed to 0.1 per cent in the three months to September from 0.5 per cent in the previous three months, the Office for National Statistics said.
Monday's PMI survey indicated that rising wages contributed to the largest increase in input costs since April.
Average rates charged by private sector firms rose at the fastest pace in nine months, which will worry Bank of England policymakers as they meet this week to vote on interest rates.
“The flash PMI for December shows businesses are absorbing the payroll tax increases in the October 30 Budget by cutting hiring and raising prices. The latter will be of particular concern to the MPC,” said Elliott Jordan Doak, an economist at consultancy Pantheon Macroeconomics. .
Markets widely expect the Bank of England to keep interest rates at 4.75 percent on Thursday, after quarter-point cuts in November and August.
Andrew Bailey, governor of the Bank of England, told the Financial Times this month
Response to high NICs The “biggest problem” was after the budget. He added: “How companies balance the mix of prices, wages, employment level and what is taken at the margin is an important judgment for us.”
The PMI survey also showed that business expectations for activity over the next 12 months fell to two-year lows in December, as companies weighed tougher sales expectations alongside higher costs, particularly for employees.
Both the employment and expectations indexes are part of the headline composite PMI, which was unchanged from November at 50.5. Williamson said the reading indicated that the economy “more or less stalled in the fourth quarter.”
However, he added that falling confidence and staff cuts “suggest the worst is to come as we head into the new year”.
