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Rachel Reeves' rise in business taxes is taking its toll on the UK economy as companies cut jobs, adding to warnings that the chancellor's budget has dented corporate confidence heading into the new year.
Private sector employment According to the S&P Global Flash UK Purchasing Managers' Employment Index published on Monday, employment fell in December at the fastest pace since January 2021 or, if the coronavirus pandemic is excluded, 2009.
The index fell to 45.8, down from 48.9 in November, and well below the reading of 50 that would point to stable headcount.
The figures were the latest in a series of data in recent days that showed two consecutive months of contraction in jobs, lower corporate confidence and GDP contraction, with business groups revving up employers' National Insurance contributions in the October budget. has attributed a £25bn increase to
Alex Veitch, director of policy at the British Chambers of Commerce, said businesses were "left scratching their heads to see how growth would be possible in the face of rising costs".
"They are trying to absorb the costs but tell us that this will mean reducing investment, cutting recruitment and, in some cases, redundancies," he added. "These are choices that firms didn't want to face."
Business concerns come ahead of a Bank of England meeting this week where interest rates are expected to remain steady despite signs of easing. economy Due to persistent inflation concerns.
Downing Street insisted that Reeves had to take tough choices on taxation to stabilize public finances and the economy. Number 10 said, “The Chancellor has made it clear that difficult decisions were needed to restore economic stability.
The PMI is an indicator of business sentiment, based on a balance between companies reporting improvements and deteriorations, and can exaggerate the economy's movements when many groups are hit by the same shock. Official figures show that redundancies have not increased in recent months and the number of salaried employees has fallen slightly.
But Monday's figures were consistent with a BoE survey this month that showed most businesses expect employment to fall as a result of measures in Reeves' budget.
They also came as a separate index from trade group Make UK showed that manufacturers' confidence in the economy fell quarter-on-quarter in the last three months of this year after the pandemic.
Michael Stull, managing director of recruitment company ManpowerGroup UK, said the "optimism" felt after Labour's landslide election victory in July was "a set of forces pushing together".
"The rhetoric coming out [the] The government was quite negative. . . That didn't help consumer confidence. When you have all of that, you see less business investment — it stops hiring."
Of all the options to manage higher national insurance contributions, including price increases and productivity improvements, "the quickest route is to reduce recruitment", Stull added.
The BCC said businesses it had raised the alarm about the impact of the National Insurance increase included an online retailer which was facing a 10 per cent, or more than £400,000, increase in its wage bill. and was considering job cuts.
A hospitality company with 500 staff has reported it is cutting back on investment and considering redundancies as it faces more than £700,000 in costs due to higher national insurance, minimum wage rises and changes to business rates. has prepared itself for the increase in Added BCC.
Rob Wood, chief UK economist at consultancy Pantheon Macroeconomics, said the PMI data pointed to the National Insurance increase being a "stagflationary" tax that would cause companies to hire fewer workers while raising prices.
Average prices charged by private sector companies rose at the fastest pace in nine months in December, according to the PMI.
"This is a sharp decline in the employment balance - we must take it seriously," added Wood. "It's a big deal for that [BoE] Monetary Policy Committee because it appears that the tax increase has given more to inflation than they thought, and less to wages.
The MPC is due to announce its latest decision on Thursday, with markets expecting interest rates to remain unchanged at 4.75 percent.
It has cut borrowing costs twice this year, BoE Governor Andrew Bailey said this month. Answer to higher national insurance was the 'biggest issue' after the budget.
Krishna Guha, an economist at investment banking advisory firm Evercore ISI, said the UK had "made significant progress on inflation", which was 2.3 per cent in October. "But the underlying inflationary trajectory has not stopped yet," he added.
A downward trend in business sentiment after the economy shrank 0.1 percent in October for the second month in a row signals a bleak outlook for economic growth at the end of the year.
Khazana said: “Our commitment to the business is unwavering. We have capped corporation tax at 25 percent, guaranteed full fixed spending, and committed to working with business to unlock more growth opportunities for our country.