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UK businesses are cutting jobs at the fastest pace since the financial crisis, excluding the pandemic, as rising costs reignited stagflation fears in the British economy at the start of the year, according to a closely watched survey.
The S&P Global flash purchasing managers’ survey on Friday indicated that the rate of job losses in January and December was the highest since the global financial crisis in 2009, outside of the onset 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 up the British economy; next week she will give a speech on her plans to boost growth.
The S&P survey also indicated that cost burdens on business rose at the fastest pace since May 2023. Many businesses passed on higher costs to consumers resulting in the fastest increase in average price charged since July 2023.
Chris Williamson, economist at S&P Global Market Intelligence, said the survey’s results “add to the gloom about the UK economy, with companies cutting employment amid falling sales and concerns about business prospects”.
He warned that inflationary pressures had “reignited, pointing to a stagflationary environment which poses a growing policy quandary for the Bank of England”.
Lower employment was attributed to hiring freezes and the non-replacement of voluntary leavers in the wake of rising payroll costs, according to the survey.
Many businesses suggested the Labour government’s decision to raise employers’ national insurance, which takes effect in April, had resulted in cutbacks to recruitment plans, while others cited the impact of a post-Budget slump in business confidence.
The Conservatives have claimed that Reeves’ tax-raising Budget will destroy jobs and hit growth, and that a major package of labour market reforms — still being finalised by ministers — will also hit hiring.
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 an increase in employers’ national insurance contributions. Sixty-one per cent expected lower profit margins and 54 per cent to raise prices.
On Thursday, retailer J Sainsbury said it was axing 3,000 jobs, including senior managers, while an executive at Associated British Foods, owner of the low-cost fashion chain Primark, cut its sales forecast amid worries about job security.
A separate survey published by the research company GfK on Friday showed that consumer confidence fell by 5 points to the lowest level in more than one year in January against a backdrop of concerns over job cuts and higher borrowing costs.
The headline S&P Global flash UK PMI composite output index, which tracks overall activity in the private sector, rose to a three-month high of 50.9 points in January from 50.4 in December.
Economists polled by Reuters had expected the index to fall slightly to 50 points. Any reading above the 50 mark suggests that most businesses are reporting growth in activity.
Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said that payroll tax increases, global uncertainty and tariff threats were “driving 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 “has to plot a middle ground”.
Similarly, Elias Hilmer, economist at Capital Economics, said the PMI figures “won’t alleviate the BoE’s concerns about the weakness of activity, but the further strengthening in price pressures suggest it will cut rates only gradually thereafter”.
Aligned with markets, he expects the BoE to cut rates by a quarter point to 4.5 per cent in February.
The UK economy registered no growth in the three months to September, marking a sharp slowdown from the 0.4 per cent in the previous quarter. The BoE expects no growth also in the final quarter of 2024.
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