(Bloomberg) -- Almost one in four British businesses cut jobs in December amid widespread pessimism over the squeeze on their finances from Labour’s tax-raising budget.
S&P Global’s purchasing managers’ index confirmed that the private sector stagnated at the end of 2024 with the weakest growth in 14 months. The final reading was at 50.4, slightly below the flash score of 50.5.
The closely watched survey showed that firms shed jobs at the fastest pace in more than 15 years — when excluding the pandemic — after Chancellor of the Exchequer Rachel Reeves hiked a major payroll tax in her Oct. 30 budget. Some 23% of employers said they’d reduced headcount.
Businesses previously warned that the £26 billion ($32.4 billion) national insurance raid would lower wage growth, limit hiring and push up prices, and December’s PMI is the latest survey to show the effect on jobs.
Confidence has slumped to its lowest level since the aftermath of former prime minister Liz Truss’s disastrous mini-budget, according to a poll published by the British Chambers of Commerce on Sunday night.
Labour has said it needs to raise taxes to stabilize the public finances and pump more money into crumbling frontline services.
“Concerns about the impact of rising payroll costs, alongside a general unease about the climate for business investment, were reported as the main factors weighing on prospects for growth in 2025,” said Tim Moore, economics director at S&P Global Market Intelligence. He said business optimism had failed to bounce back from the budget, with expectations for growth stuck at the two-year low.
Growth Pledge
The UK economy has slowed sharply since Labour won a landslide victory in July’s election, after matching the strongest growth in the Group of Seven in the first half of the year. Last month revised figures showed that gross domestic product was flat in the third quarter, and the Bank of England expects the final quarter to be stagnant too.
The slowdown laid bare the challenge Labour faces in reviving the economy after it promised to turbocharge growth to the fastest in the G-7. It is relying on an expanding economy to generate more money for infrastructure projects and public services, such as the state-run health sector.
December’s PMIs also revealed signs of inflationary pressures building again, with costs facing businesses rising at the fastest pace since April. Firms cited higher wages and climbing raw material costs.
A separate survey from the Federation of Small Businesses on Monday also highlighted concerns around Labour’s plans to bolster workers’ rights. Nearly a third of firms said they would cut jobs as a consequence, the poll found.
(Updates with business group surveys and chart)
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