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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, according to a closely watched survey.
The S&P Global flash purchasing managers’ survey on Friday showed the net share of businesses reducing staff numbers in January and December was the highest since the global financial crisis in 2009, outside of the onset of Covid-19 in 2020.
In the latest significant job cuts, Supermarket chain J Sainsbury this week said it was axing 3,000 roles.
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 survey contained some positive news with the headline index, which tracks overall activity in the private sector, rising 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 and companies surveyed highlighted new product launches and successful marketing as driving activity.
But 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 prices 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 contributions, 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 October 30 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.
Andrew Griffith, shadow business secretary, said Reeves would be forced into a U-turn to save jobs, including possibly reversing her planned labour market reforms or the £25bn increase in employers’ NICs.
Griffith said: “To turn this around fast something’s got to give, whether it is the jobs killing Employment Bill, the NI hike or the anti-growth red tape still spewing out — or ideally all three.”
The Treasury said: “By bringing back political and financial stability, we are creating the conditions for growth and this week PwC confirmed that the UK has become the second most important destination for global investment after only the US.”
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’ NICs. Sixty-one per cent expected lower profit margins and 54 per cent to raise prices.
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.
Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said payroll tax increases, global uncertainty and tariff threats were “driving inflation and output in opposite directions”.
He added that growth was not weak enough to warrant faster rate cuts, but inflation was 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.
