Businesses are cutting jobs at the fastest pace in nearly four years as Labour’s ‘downbeat rhetoric and policies’ take their toll.
The closely-watched purchasing managers’ index (PMI) report showed the steepest decline in private sector workforce numbers since January 2021 when Britain was still in the grip of Covid lockdowns.
And it showed business optimism sliding to the lowest level in two years amid concerns about tax hikes announced by Rachel Reeves in the Budget.
Chris Williamson, chief business economist at S&P Global Market Intelligence, which compiled the PMI survey, said: ‘The loss of confidence and increased culling of jobs hints at worse to come as we head into the new year.’
It is the latest sign that the Chancellor’s £25billion Budget raid on employer National Insurance (NI) is stunting growth.
The report said some employers decided not to replace departing staff as a result of rising employment costs.
Job cuts: Chancellor Rachel Reeves’s £25bn Budget raid on employer national insurance is appearing to stunt growth
Others said the NI changes have prompted them to cut back hours and embark on ‘longer term efforts to restructure workforces’.
It also pointed to the imposition of a raft of new workers’ rights regulations as contributing to the ‘marked pull-back in hiring’.
The figures come after a warning last week that the economy was on ‘recession watch’ after official data showed gross domestic product (GDP) declined in October.
That was blamed on companies hesitating about their plans as they awaited the Budget, which came at the end of October.
Yet there are signs that activity may have deteriorated further after measures introduced by Reeves turned out even worse than feared.
And the Chancellor’s decision to splurge tens of billions more on borrowing and spending have created a further headache by adding to inflation pressures.
Figures tomorrow are expected to show inflation has climbed to 2.6 per cent, which would be the highest since March.
Williamson said: ‘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.
‘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.
‘Firms are responding to the increase in National Insurance contributions and new regulations around staffing with a marked pull-back in hiring, causing employment to fall in December at the fastest rate since the global financial crisis in 2009 if the pandemic is excluded.’
The PMI survey’s headline reading of 50.5 – on a scale where the 50-mark separates growth from contraction – was unchanged from November but worse than expected by economists.
It showed that business activity is growing only marginally –and at a much weaker pace than in the first half of the year before Labour took power.
Consultancy Capital Economics said the data was consistent with GDP shrinking by 0.3 per cent in the fourth quarter.
But they noted that the PMI covers only the private sector and would not capture the rise in government spending.
Separate figures from S&P Global yesterday showed UK consumer sentiment sinking to a three-month low as the high cost of living eats into disposable incomes.
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