British Businesses Experience Sharp Staffing Cuts

By William Schomberg
LONDON (Reuters) – British businesses have reduced staffing levels significantly, the largest drop since the COVID pandemic, and reported a steep decline in confidence, according to two recent surveys blaming government tax hikes.

The preliminary S&P Global Flash Composite Purchasing Managers' Index (PMI) for December and a quarterly survey from MakeUK indicate a slowdown in the economy linked to the budget presented by Finance Minister Rachel Reeves on October 30.

In addition to not replacing departed staff, many firms cut working hours and initiated planned restructurings. Excluding the pandemic, this employment reduction is the sharpest since the global financial crisis of 2009.

The price index within the PMI showed that prices charged by companies increased, potentially concerning the Bank of England's Monetary Policy Committee (MPC), which is monitoring how businesses react to higher social security contributions.

Sterling experienced a brief rise following the PMI report, as investors concentrated on the reported price pressures. Economist Thomas Pugh from RSM UK commented, "The MPC is now facing that nasty trade-off between slow growth and rising inflation, which will force it to cut interest rates only gradually next year," referring to the BoE's December rate decision which is predicted to maintain current borrowing costs.

The headline PMI remained at 50.5, just above the neutral mark of 50.0, but still fell short of economists' expectations for a rise to 50.7.

Losing Momentum

Manufacturing activity hit an 11-month low, and while there was some improvement in the services sector, employment across both sectors contracted at the highest rate since January 2021. In contrast, the prices levied by firms surged at the fastest pace in nine months due to rising input costs, including wages.

Chris Williamson, chief business economist at S&P Global Market Intelligence, remarked, "Economic growth momentum has been lost since the robust expansion earlier in the year, as businesses and households have responded negatively to the new Labour government's downturn rhetoric and policies."

The MakeUK survey indicated the most severe decline in confidence among manufacturers since the pandemic began. Fhaheen Khan, a senior economist at Make UK, noted that manufacturers are confronting a cost crisis after experiencing rising costs throughout the year.

Along with a £25 billion ($32 billion) increase in social security contributions announced by Reeves in her budget, Britain’s minimum wage is set to rise by nearly 7% in April. Recent surveys also reveal decreased hiring intentions among employers.

Official data released last week confirmed that Britain's economy contracted in September and October, marking the first consecutive declines in output since 2020.