UK private sector employment shrinks at fastest pace since 2021

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UK companies are cutting employee numbers at the fastest rate since the pandemic, according to a closely watched survey that highlights the impact of Rachel Reeves’ tax-hiking Budget.

Private sector employment in December fell more than during any month since January 2021, according to the S&P Global flash UK purchasing managers’ employment index.

In the third consecutive month of contraction, the index fell to 45.8, down from 48.9 in November. It was far below the key 50 mark and the lowest since 2009 if the pandemic is excluded.

Any reading below 50 indicates that a majority of business are reducing headcount.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Firms are responding to the increase in national insurance contributions and new regulations around staffing with a marked pullback in hiring, causing employment to fall in December at the fastest rate since the global financial crisis in 2009 if the pandemic is excluded.”

In another setback for Reeves, separate figures published on Monday indicated that manufacturers’ confidence in the UK economy is also falling at its sharpest rate since the pandemic.

In her autumn Budget, which raised taxes by £40bn, the UK chancellor announced a £25bn rise in employer national insurance contributions from April 2025.

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

Reeves has defended the policy but critics have accused her of denting business confidence, and many companies have said it will hit hiring and could lead to higher prices.

Monday’s PMI survey also showed that business expectations for the 12 months ahead sank to a two-year low in December as companies weighed up a tougher outlook for sales alongside rising costs, notably for staff, as a result of changes announced in the Budget.

Both the employment and expectations indices are part of the headline PMI Composite index, which was unchanged from the previous month at 50.5 in December. Williamson said the reading was indicative that the economy “more or less stalled in the fourth quarter”.

However, he added that the loss of confidence and cutbacks in headcount “hints at worse to come as we head into the new year”.