(Bloomberg) -- Britain’s private-sector firms cut jobs at the fastest pace since the global financial crisis — outside the pandemic — an early sign of the fallout from Chancellor Rachel Reeves’ £26 billion ($33 billion) payroll tax hike.
S&P Global said its composite PMI was unchanged at 50.5 in December, suggesting a largely stagnant picture for the economy. It was close to the 50.6 expected by economists and slightly above the 50 threshold separating growth and contraction.
The survey showed a third straight fall in employment. It was the sharpest cut since 2009 when excluding the period of the coronavirus outbreak and associated lockdowns. Business confidence sank to a two-year low and firms raised prices at the fastest pace for nine months. The combination of ”stalled” growth and resurgent inflation is likely to stoke worries about stagflation.
The pound extended gains after the data, rising 0.4% to $1.2672. Traders trimmed bets on monetary easing, seeing 77 basis points of rate cuts through to the end of 2025 versus 79 basis points before the figures.
While the figures pointed to a stabilization following a large post-budget deterioration in November, a wave of redundancies will likely put pressure on Prime Minister Keir Starmer after a rocky start for his Labour government.
Businesses shouldered the bulk of the £40 billion of tax rises in the Oct. 30 budget. The PMI confirms the findings of a recent Bank of England survey that suggested firms would cut staff and raise prices in reaction to the huge increase in their national insurance contributions.
It suggests there is more pain to come in official output data. On Friday, figures from the Office for National Statistics showed gross domestic product contracting for a second straight month in October.
“Businesses and households have responded negatively to the new Labour government’s downbeat rhetoric and policies,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Firms are responding to the increase in national insurance contributions and new regulations around staffing with a marked pullback in hiring.”
While the services sector enjoyed a modest rebound in activity in December, the manufacturing PMI slipped to an 11-month low.
S&P also said that total new orders declined for the first time in 13 months. The pickup in average prices charged came as ”respondents commented on the need to alleviate pressure on margins from higher salary payments, as well as general business overheads and greater prices paid for fuel and raw materials.”
--With assistance from Greg Ritchie.
(Updates with market reaction, chart from fourth paragraph.)
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