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Highlights:
- Sharp Decline in Employment: Private sector employment fell at the fastest rate since January 2021, marking the third consecutive month of job losses.
- Economic Stagnation: UK PMI reading held at 50.5, indicating flat growth with declining manufacturing output offset by modest service sector activity.
- Inflationary Pressures Resurface: Rising costs, including higher national insurance contributions and staffing regulations, drive renewed inflation concerns.
The UK private sector is grappling with the steepest employment decline since the height of the Covid-19 pandemic, according to the latest flash Purchasing Managers’ Index (PMI) data from S&P Global. Staffing numbers fell sharply in December 2024, marking the fastest rate of decline since January 2021 and the third consecutive month of job losses.
The contraction is attributed to businesses choosing not to replace departing workers in the face of escalating costs, including higher national insurance contributions and compliance with new staffing regulations introduced in the recent Budget.
Chris Williamson, chief business economist at S&P Global, commented, “Business confidence has sunk to a two-year low as companies weigh up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget.”
Stagnating Growth and Renewed Inflationary Pressures
The PMI reading for December remained unchanged at 50.5, barely within growth territory. While service sector activity posted modest gains, this was offset by a decline in manufacturing output, underscoring the uneven performance across industries.
Adding to the economic woes, inflationary pressures appear to be resurfacing. Rising operational costs, particularly related to wages and staffing, are weighing heavily on business sentiment. This has led to a cautious approach toward hiring and investment decisions.
Business Confidence Hits Two-Year Low
The deteriorating employment situation and flat economic growth have dented business confidence, now at its lowest level in two years. The PMI data reflects a "triple whammy" for UK businesses: stalled growth, declining employment, and a resurgence in inflationary pressures.
“Firms are responding to the increase in national insurance contributions and new regulations around staffing with a marked pull-back in hiring,” Williamson explained.
Sectoral Performance: Services Versus Manufacturing
Service sector businesses have shown some resilience, with activity levels seeing slight growth. However, manufacturing continues to contract, driven by weak demand and rising input costs. This divergence highlights the uneven recovery and the challenges facing key sectors of the UK economy.
Outlook for 2025
The employment slump, coupled with stagnating growth and inflationary pressures, paints a challenging outlook for the UK as 2025 approaches. Policymakers and businesses alike face the dual challenge of fostering economic growth while addressing cost-related hurdles. With confidence waning and headwinds mounting, the private sector will be closely watched in the months ahead.
