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UK businesses are cutting jobs at the fastest pace since the financial crisis, barring the pandemic, as rising costs revived fears of stagflation in the British economy earlier in the year, according to a closely watched survey.
The S&P Global Flash Purchase Managers Survey on Friday showed that the rate of job losses in January and December was the highest since the global financial crisis in 2009, outside of the start of Covid-19 in 2020.
The data will come as a blow to chancellor Rachel Reeves, who has spent this week at the World Economic Forum in Davos talking about the British economy; next week she will give a speech on her plans to boost growth.
The S&P survey also showed that business cost burdens rose at the fastest pace since May 2023. Many businesses passed higher costs on to consumers resulting in the fastest increase in the average price charged since July 2023.
Chris Williamson, economist at S&P Global Market Intelligence, said the survey results “add to the gloom of the UK economy, with companies cutting employment amid falling sales and concerns about the business outlook”.
He warned that inflationary pressures had “rekindled, pointing to a stagflationary environment that poses a growing policy problem for the Bank of England”.
Low employment was attributed to hiring freezes and not replacing voluntary quitters after rising payroll costs, according to the survey.
Many businesses suggested the Labor government’s decision to increase employers’ national insurance, which comes into force in April, had resulted in cuts to recruitment plans, while others cited the impact of a post-Budget slump in business confidence.
The Tories have claimed that Reeves’ tax hike budget will destroy jobs and hit growth, and that a major package of labor market reforms – still being finalized by ministers – will also hit employment.
Earlier this month, a BoE survey showed that on average in November and December, 53 per cent of businesses expected lower employment in response to a rise in employers’ national insurance contributions. Sixty-one percent expected lower profit margins and 54 percent to raise prices.
On Thursday, retailer J Sainsbury said it was cutting 3,000 jobs, including senior managers, while an executive at Associated British Foods, owner of discount fashion chain Primark, cut its sales forecast amid concerns about job security.
A separate survey released by research firm GfK on Friday showed consumer confidence fell 5 points to its lowest level in more than a year in January amid concerns about job cuts and higher costs. of borrowing.
The headline S&P Global flash UK PMI composite manufacturing index, which tracks overall activity in the private sector, rose to a three-month high of 50.9 in January from 50.4 in December.
Economists polled by Reuters had expected the index to fall slightly to 50 points. Any reading above 50 suggests that most businesses are reporting increased activity.
Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said rising payroll taxes, global uncertainty and tariff threats were “pushing inflation and output in opposite directions”.
He added that growth is not weak enough to warrant faster rate cuts, but inflation is strong enough to warrant caution, suggesting the Monetary Policy Committee “needs to chart a middle course.”
Similarly, Elias Hilmer, economist at Capital Economics, said the PMI figures “will not ease the BoE’s concerns about weak activity, but further strengthening of price pressures suggests it will cut rates only gradually after that “.
In line with markets, he expects the BoE to cut rates by a quarter point to 4.5 percent in February.
The UK economy recorded no growth in the three months to September, slowing sharply from 0.4 per cent in the previous quarter. The BoE does not expect growth in the last quarter of 2024 either.
