British businesses are cutting jobs at the fastest pace since the financial crisis excluding the pandemic, according to a closely watched survey as distress continues to grow in the British economy.
A survey by S&P Global Flash Buying Managers on Friday showed that the net share of headcount reductions in January and December was the highest since the global financial crisis in 2009, before Covid-19 hit 2020.
In the latest major job cuts, supermarket chain J Sainsbury's said this week it was cutting 3,000 roles.
The figures will be a blow to Prime Minister Rachel Reeves. Next week, she will give a speech on her plans to boost growth.
The survey contained some positive news, with the headline index tracking overall private sector activity rising to 50.9 points in January from 50.4 points in December.
Economists polled by Reuters expected the index to drop slightly to 50 points. Any reading of the above 50 points shows that most businesses are reporting an increase in activity, with companies surveyed emphasizing product launches and successful marketing as driving activity.
However, the S&P survey also showed that business cost burdens are rising at the fastest pace since May 2023. Many businesses have imposed higher costs on consumers, leading to the fastest rise in average prices charged since July 2023.
Chris Williamson, an economist at S&P Global Market Intelligence, said the survey's findings "added to the gloom about the UK economy, with companies cutting jobs amid falling sales and concerns about business prospects".
He warned that inflationary pressures "reignited, pointing to a fragmented environment that poses growing policy difficulties for the Bank of England".
The survey suggested lower employment was down to a lack of replacement of voluntary leavers following a hiring freeze and a rise in pay rates.
Many businesses suggested the Labor government's decision on employers' national insurance contributions, which comes into effect in April, has led to cuts to recruitment programmes, while others cited the impact on business confidence following the budget.
The Conservatives claim Reeves' October 30 budget will destroy jobs and attack growth, while a raft of labor market reforms - still being completed by ministers - will also hit hiring.
Shadow business secretary Andrew Griffith said Reeves would be forced to make a U-turn to save jobs, including potentially reversing her planned labor market reforms or £25bn from employer Nice (NIC).
"To reverse this quickly, whether it's the job-killing Jobs Act, the NI excursions or the anti-breeding red tape that's still being handed out, or ideally all three," Griffith said.
The Treasury said: "By bringing back political and financial stability, we are creating the conditions for growth and this week, PwC confirmed that the UK has become the second most important destination for global investment after the US."
Earlier this month, a BOE survey showed that in November and December, 53% of businesses expected employer increases and expected lower employment. 61% expect lower profit margins and 54% increase prices.
A separate survey published on Friday by research firm GFK showed consumer confidence fell 5 points to its lowest level in more than a year, while worries about job cuts and higher borrowing costs also fell.
Elliott Jordan-Doak, senior economist at Pantheon Macroeconomics, said payroll tax increases, global uncertainty and the threat of tariffs are "pushing inflation and output in the opposite direction."
He added that growth was not enough to warrant a faster rate of reduction, but inflation was enough to proceed with caution, suggesting the MPC "must plot a middle ground".
Likewise, Elias Hilmer, an economist at Capital Economics, said the PMI data "will not alleviate the BOE's concerns about weak activity, but the further strengthening of price pressures suggests there will only be a gradual taper thereafter." rates”.
He hopes to stay in line with the market and expects the BOE to cut the tax rate by a quarter point to 4.5% in February.
The UK economy did not grow in the three months to September, marking a sharp slowdown of 0.4% in the previous quarter. BOE also doesn't expect growth in the final quarter of 2024.