Companies lost jobs at the fastest pace in four years last month, according to the latest data from S&P Global, as higher labor costs and growing uncertainty over the autumn budget eroded confidence.
Excluding pandemic-era figures, the workforce decline was the sharpest in more than 15 years, with nearly a quarter of companies laying off workers or freezing hiring.
The closely watched composite purchasing managers’ index (PMI) fell from 50.5 in November to 50.4 in December, just above the 50-point barrier that separates growth from contraction. This was slightly lower than analyst forecasts and the lowest reading since October 2023.
Chancellor Rachel Reeves’ tax changes, announced in October, have contributed to a workforce decline. National insurance contributions (NICs) rose from 13.8% to 15%, while the tax threshold was reduced from £9,100 to £5,000 – a combined increase of £25 billion for businesses.
Thomas Pugh, economist at consultancy RSM UK, said the slowdown in private sector job creation is “the clearest signal yet that firms were responding to the rise in labor costs by slowing hiring”.
Tim Moore, economics director at S&P Global Market Intelligence, noted that ongoing concerns about “rising labor costs” and “anxiety about the business investment environment” were taking a toll on sentiment for 2025.
Despite the gloom, economists predict stronger economic momentum in the first half of this year as government spending rises and the Bank of England is expected to cut interest rates from 4.75%. A KPMG report predicts that economic growth in Britain will more than double to 1.7% by 2025.
However, the Bank of England recently revised down its GDP growth forecast for the final quarter to 0%, pointing to stagnation at the end of last year.
Although the PMI services index rose from 50.8 to 51.1 in December, it missed the consensus estimate of 51.4 and was revised lower than the initial flash value. Researchers attributed the strongest price increases in six months to higher salary costs and higher raw material costs.
Consumer price inflation rose from 2.3% to 2.6% in November, and with services inflation remaining high at 5%, the Bank of England will keep a close eye on interest rates before deciding whether to cut rates.