Services firms slashed jobs last month at the fastest pace in more than 15 years outside the pandemic as business confidence slumped in the wake of the Budget.
Companies responded to the rising cost of employment, including Labour’s £25billion National Insurance (NI) tax raid, by axing staff, according to the closely-watched monthly purchasing managers’ index (PMI) survey by S&P Global.
The report added that optimism about growth in the year ahead remained at the lowest level in nearly two years.
In a separate report on the situation in the eurozone, S&P said the single currency bloc ended 2024 ‘in a fragile state’ with business activity declining in Germany, France and Italy.
The findings underline the precarious state of the UK and European economies at the start of the New Year.
The job cuts in Britain are the latest evidence that the NI hikes are having a damaging impact on the economy, which has stagnated since Labour took office.
Job cuts: Companies have responded to the rising cost of employment by axing staff, according to the closely-watched monthly purchasing managers’ index survey by S&P Global
‘A post-Budget slump in business optimism persisted in December,’ said Tim Moore, economics director at S&P Global.
‘Faced with subdued demand conditions and hikes to employment costs, many service providers opted to curtail their staff hiring and delay backfilling roles in December.
‘Excluding the pandemic, this represented the steepest pace of job shedding for more than 15 years.’
The sprawling services sector, which covers everything from hair salons and bars to law firms and accountants, represents more than four-fifths of UK output.
According to the PMI survey, sales were held back in December amid ‘falling confidence among clients in the wake of the autumn Budget, especially due to forthcoming increases in employers’ National Insurance contributions’.
Employment was a ‘weak spot’ for the sector as 2024 drew to a close, the report added, with lower staffing numbers reported for three months in a row with the latest reduction the fastest since January 2021 when Britain was still in the grip of Covid lockdowns.
The survey found 23 per cent of firms reported a fall in workforce levels in December, nearly twice as many as the 12 per cent that said numbers rose.
Official figures show the UK economy recorded zero growth in the third quarter of 2024 and the Bank of England has forecast that it also stagnated in the fourth quarter.
Separate figures from the British Chambers of Commerce (BCC) showed business confidence slumping to the lowest level since the Liz Truss mini-Budget in 2022 as firms become increasingly worried about taxes – and more than half predict price hikes.
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