UK businesses are cutting jobs at the fastest pace since the global financial crisis, according to a Purchasing Managers’ Index (PMI) survey.
The report attributes this decline to rising taxes, stricter staffing regulations, and sluggish demand.
The PMI data, closely monitored by the Treasury and the Bank of England, revealed that employment levels fell sharply in December—marking the steepest drop since 2009, excluding the COVID-19 pandemic period.
Key findings from the survey:
- The PMI for December remained unchanged at 50.5, signaling sluggish growth.
- Job losses were triggered by rising employment costs, weaker demand, and shrinking profit margins.
- Companies are cutting back on hiring due to higher national insurance contributions and regulatory changes.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“Economic growth momentum has been lost… Firms are responding to national insurance increases and new staffing regulations with a marked pull-back in hiring.”
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Impact of Rachel Reeves’s Budget
The decline in employment follows Chancellor Rachel Reeves’s £40bn tax-raising budget, which introduced higher national insurance contributions. Reeves defended the move as essential for repairing public finances and restoring public services.
However, business leaders argue the changes are stifling growth:
- Employer contributions will rise by £25bn from April.
- Companies are warning of further job cuts, wage stagnation, and price increases.
The independent Office for Budget Responsibility (OBR) will publish its next economic forecast on 26 March. Reeves is expected to address MPs alongside the report, though no further budget adjustments are planned until autumn 2025.
Fragile Consumer Confidence Adds Pressure
The PMI survey highlighted key factors impacting businesses:
- Fragile consumer confidence and reduced corporate spending.
- Inflation-driven increases in salary payments and operating costs.
- Cuts to non-essential expenditures by both consumers and companies.
Official economic data supports these findings. In October, the UK economy unexpectedly shrank by 0.1%, underlining the economic hurdles facing Prime Minister Keir Starmer.
Starmer’s government has set an ambitious target to make the UK the fastest-growing G7 economy.
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A Cooling Jobs Market Amid Inflation Concerns
The UK’s jobs market, although cooling, remains resilient. Annual wage growth continues to hover at record highs. According to official forecasts:
- Unemployment is expected to remain steady for the three months to October.
- Wage growth, excluding bonuses, is projected to rise from 4.8% to 5%.
The Bank of England remains cautious, watching how businesses react to Reeves’s budget. Two critical outcomes are being monitored:
- Job cuts: Increased job losses could reduce wage pressures and prompt the Bank to lower interest rates.
- Price hikes: If businesses raise prices to offset costs, it could fuel inflation, keeping interest rates higher for longer.
The Bank’s Monetary Policy Committee (MPC) is expected to hold interest rates steady at 4.75% in its next review.
Political Reactions Intensify
The job cuts have intensified political criticism. Shadow Business Secretary Andrew Griffith called the PMI data “shocking” and blamed the government’s policies.
He said:
“Labour’s jobs tax is hammering businesses and workers alike. The chancellor must start listening to businesses, not just her union paymasters.”
Meanwhile, a Treasury spokesperson defended the government’s decisions:
“Difficult choices were needed to restore economic stability… We remain committed to business growth by capping corporation tax at 25% and confirming full permanent expensing.”
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What’s Next for the UK Economy?
While the government emphasizes long-term stability, businesses face immediate challenges:
- Rising costs are limiting hiring and investments.
- Fragile consumer confidence is slowing economic growth.
- Employment declines may persist unless fiscal policies adapt to business concerns.
The next few months will be crucial as economic forecasts and employment trends provide a clearer picture of the UK’s recovery path. Whether the government can balance public service funding with business growth remains a pressing question.
