Firms slash jobs at quickest rate in four years following budget tax hikes

Companies shed jobs at the fastest pace in four years last month after rising staffing costs and growing uncertainty from the fall budget dented confidence, according to the latest S&P Global data.

Excluding pandemic-era figures, the decline in headcount was the steepest in more than 15 years, with nearly a quarter of companies either laying off workers or freezing hiring.

The closely watched final composite Purchasing Managers’ Index (PMI) fell to 50.4 in December from 50.5 in November, just above the 50-point mark that separates growth from contraction. This was slightly below analyst expectations and the lowest reading since October 2023.

Chancellor Rachel Reeves’ tax changes, announced in October, have contributed to lower employment rates. National Insurance contributions for employers rose from 13.8% to 15%, while the tax threshold was lowered from £9,100 to £5,000 – representing a total rise of £25 billion for businesses.

Thomas Pugh, an economist at consultancy RSM UK, said the slowdown in private sector job creation was “the clearest signal yet that companies were responding to increases in labor costs by slowing hiring.”

Tim Moore, director of economics at S&P Global Market Intelligence, noted that persistent concerns about “rising payroll costs” and “concerns about the business investment climate” were having a negative impact on sentiment for 2025.

Despite the gloom, economists expect stronger economic momentum in the first half of this year as government spending increases and the Bank of England is expected to cut interest rates from 4.75%. The KPMG report expects economic growth in the United Kingdom to double to 1.7% in 2025.

However, the Bank of England recently revised its GDP growth forecast for the fourth quarter to 0% – indicating a recession at the end of last year.

Although the services PMI rose to 51.1 in December from 50.8, it missed the consensus estimate of 51.4 and was revised down from the initial flash reading. The researchers attributed the largest increase in prices in six months to higher salary bills and increased costs of raw materials.

Consumer price inflation rose from 2.3% to 2.6% in November, and with services inflation remaining high at 5%, the Bank of England will be watching closely before deciding whether to cut interest rates.