British businesses cut jobs at the fastest rate since the pandemic in the run-up to Rachel Reeves’ Autumn Budget.
A closely-watched survey from the Bank of England, which quizzes finance directors on their staffing levels, showed employment in the private sector fell by 1.8 per cent in November – the steepest monthly decline since July 2021.
The finance bosses also said they expect to cut headcount by around 0.7 per cent on average over the next year, marking the most significant decline since October 2020.
It came after months of back-and-forth briefing, which led to carnage in markets and had businesses on the back foot, riddled with uncertainty.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the “chaotic pre-Budget tax hike speculation” led to “collapsing job growth”.
The latest set of key survey data will tip the Bank into cutting interest rates by another 25 basis points later this month, Wood added.
“Sharply weaker employment gains nail a December rate cut,” he said.
“Inflation or official labour market data would have to surprise hugely to stop the MPC reducing rates in December now.
“But there are clearer signs that structural changes in the labour market are supporting pay, which will have to keep the Monetary Policy Committee (MPC) cautious.”
Bank of England wary about inflation
Elevated inflation expectations were a key risk highlighted in the Bank of England’s Decision Makers Panel survey.
The Bank of England said general CPI inflation expectations over a three-year period increased to three per cent while one-year ahead expectations stayed at 3.4 per cent.
The latest official inflation data showed price growth at 3.6 per cent in the year to October, well above the UK’s two per cent target.
The conflicting data on falling employment and inflation expectations presents a conundrum for the hawks and doves at the Bank of England, who have placed varying emphasis on inflation expectations and job decline when voting on whether to lower interest rates.
Survey data in recent months has pointed to a collapse in business confidence, continued payroll cost pressures and further delays in investment.
Researchers at some economics consultancies have suggested that the delivery of the Budget could provide some further stability to businesses in the coming months, though some firms, including in the hospitality sector, will still have to work through the impact of varying tax hikes and policy announcements.
Bank of England Governor Andrew Bailey and other MPC members are expected to comment on the effects of Rachel Reeves’ measures in the coming week, testing whether the Chancellor has indeed managed to ease the cost of living for Britons.