UK companies are shedding jobs at the fastest rate since the global financial crisis, excluding the pandemic period, after Chancellor Rachel Reeves announced a £40 billion tax increase in the latest Budget, according to a key survey.
The S&P Global Flash UK Purchasing Managers Index (PMI) revealed that private-sector employment declined for the fourth consecutive month in January. Business leaders attributed the job cuts to the Chancellor’s impending £25 billion rise in National Insurance, leading firms to scale back their recruitment efforts.
This layoff surge follows Sainsbury’s recent announcement to eliminate 3,000 positions, just weeks after its CEO highlighted the adverse effects of the Chancellor’s tax measures.
Chris Williamson, Chief Business Economist at S&P Global, commented, “The loss of confidence, combined with widespread concerns over higher staff costs associated with the Budget, pushed employment sharply lower again. Barring the job cutting seen during the pandemic, the rate of job losses signalled by the PMI over the past two months has been the highest since the global financial crisis in 2009.”
Elliott Jordan-Doak of Pantheon Macroeconomics cautioned that the PMI figures indicate the Bank of England is constrained in its ability to respond to slowing growth. “Price pressures are surging as firms aggressively pass on payroll tax hikes into prices while also cutting employment,” he explained.
In response to the economic indicators, traders have tempered their expectations for interest rate cuts by the Monetary Policy Committee (MPC) later this year. However, a slight reduction from 4.75% to 4.5% next month remains anticipated.
Mr. Jordan-Doak added, “The MPC has to plot a middle ground, keeping growth weak enough to bring inflation back to target in a reasonable time but without cratering the economy and undershooting the inflation target.”
The ongoing job losses and economic uncertainty highlight the challenging environment businesses face as they navigate increased tax burdens and fluctuating market conditions.
