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UK companies are cutting workforces at the fastest rate since the pandemic, according to a closely watched survey that highlights the impact of Rachel Reeves' tax-raising budget.

Private sector employment fell in December by the most in any month since January 2021, according to the S&P Global Flash UK Purchasing Managers' Employment Index.

The index fell to 45.8, down from 48.9 in November. It was below the key 50 mark for the third straight month and the lowest since 2009 if the pandemic is excluded.

Any reading below 50 indicates that most businesses are reducing headcount.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Firms are responding to increases in national insurance contributions and new rules around staffing, which have certainly led to a return to jobs, which The reason is that employment fell at the fastest rate since the global in December. Financial crisis in 2009 if pandemics are excluded."

In another blow to the UK chancellor, separate figures published on Monday indicated that manufacturers' Confidence in the economy has also declined At the sharpest rate since the pandemic in the last quarter.

In his fall budgetThat raised £40bn in taxes, with Reeves announcing a £25bn increase in employer national insurance contributions from April 2025.

Businesses will start paying NICs from £5,000 on employee earnings, instead of the current £9,100 threshold, and the rate will rise by 1.2 percentage points to 15 per cent.

Reeves, who has promised Britain's most "pro-growth" treasury, has defended the policy. But critics have accused him of undermining business confidence, and many companies have said the measure will affect hiring and lead to higher prices.

Data published on Monday by trade group Make UK showed an index tracking manufacturers' confidence in the economy fell to 5.8 in the final quarter from 6.8, the biggest quarter-on-quarter fall since spring 2020.

Official figures published last week showed the UK economy shrank by 0.1 per cent for two consecutive months in October, following strong growth in the first half of the year to a weak start in the final quarter. points out

Growth slowed to 0.1 percent in the three months to September, down from 0.5 percent in the previous three months, the Office for National Statistics said.

Monday's PMI survey indicated that rising wages contributed to the biggest increase in input costs since April.

Average prices charged by private sector companies rose at their fastest pace for nine months, which will be a cause for concern for Bank of England policymakers as they meet this week to vote on interest rates.

“The flash PMI for December shows that firms absorbed the payroll tax increase by cutting rents and raising prices in the October 30 Budget. The latter will be a particular concern for the Monetary Policy Committee,” said Elliott Jordan-Dock, economist at consultancy Pantheon Macroeconomics.

Markets widely expect the BoE to keep interest rates on hold at 4.75 percent on Thursday, after quarter-point cuts in November and August.

Andrew Bailey, the BoE governor, told the Financial Times this month that
Respond to higher NICs was the 'biggest issue' after the budget. "How companies balance the mix of prices, wages, employment levels, what's taken at the margin is an important judgment for us," he added.

The PMI survey also showed that expectations of business activity for the next 12 months sank to a two-year low in December as companies weighed rising costs as well as a tougher outlook for sales, particularly for staff.

Both employment and expectations are part of the headline PMI composite index, which was unchanged from November at 50.5. Williamson said the reading was a sign that the economy "more or less stalled in the fourth quarter".

However, he added that the drop in confidence and headcount cuts were "signs of worse to come as we move into the new year".