The private sector cut jobs at the fastest rate for nearly 4 years in December as firms respond to new tax rules announced in the Budget.
The latest S&P Global Flash UK Purchasing Managers’ Index (PMI) found that while the headline figure for business confidence was unchanged from November, thanks to a marginal increase in business activity, other areas of the economy saw a sharp drop-off.
Manufacturing output and PMI both fell to an 11-month low, at 45.7 (from 48.3) and 47.3 (from 48) respectively, while companies reported the sharpest decline in workforce numbers since January 2021.
The fall-off in UK workers were credited to a combination of softer demand, rising employment costs, and squeezed margins for companies, as price pressures rose at the quickest rate in nine months.
“Total new orders decreased for the first time in 13 months amid widespread reports of weaker business and consumer spending patterns,” the report said.
The manufacturing and services sectors saw a clear divergence in trends, with the rate of decline in manufacturing accelerating to its fastest since January, while there was a modest rise in service sector output to 51.4.
“Firms have opted not to replace workers as rising employment costs squeeze margins and the gloomy post-budget mood continues to weigh on confidence,” said Kyle Chapman, FX markets analyst at Ballinger Group.
“For sterling, the uptick in inflationary pressure and the increasingly hawkish Bank of England rate path for 2025 are outweighing the soft growth outlook.”
The news comes following a Bank of England survey earlier this month that found more than half of companies were planning to raise prices in response to the Budget, while also cutting jobs and pay.
Meanwhile, the latest report on jobs from KPMG showed that salary growth reached its slowest pace since February 2021, as a rise in redundancies and low demand for workers squeezed private sector pay.
“Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
“Economic growth momentum has been lost since the robust expansion seen earlier in the year, as businesses and households have responded negatively to the new Labour government’s downbeat rhetoric and policies.
“Business confidence has sunk to a two-year low as companies weigh up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget. The survey’s price gauges are indicating that inflation is turning higher again.”