Businesses laid off staff at the fastest rate in nine months as growth in the UK economy suffered a “renewed slowdown”, new data has indicated.
S&P Global’s purchasing managers’ index (PMI) for November suggested growth marginally changed over the month, with researchers pointing the finger at pre-Budget speculation keeping bosses on edge.
The composite PMI figure fell to 51.2 from 52.2 in the previous month, only slightly above the 50-figure benchmark for no change in activity.
Analysts said that the decline in workforce numbers over the month was the steepest since February this year. There have been drops in headcounts across each of the last 13 months, according to the data.
Survey respondents blamed higher payroll costs, which are driven by a heavier tax burden and faster wage growth, for the breakdown in hiring activity across the services sector while figures also showed there had been an “abrupt end” to improvements in order books for firms.
The degree of optimism across the services sector also eased slightly on the month due to cutbacks in investment plans.
“Lower workloads led to a renewed slowdown in business activity growth across the UK service economy, with the latest expansion much softer than the post-pandemic trend,” said Tim Moore, economics director S&P Global.
“Survey respondents widely commented on business challenges linked to fragile client confidence, heightened risk aversion and elevated policy uncertainty in the run up to the Budget.
“Many firms noted that major spending decisions had been delayed, while some also cited long-term growth headwinds from subdued investment spending.”
The PMI reading for the services sector, which covered around 650 firms, was just 51.3 in November while manufacturing helped to lift the overall reading after the sector was boosted by its first positive growth reading in November in 14 months.
Staff decline reflect ‘risks to the job market’
Economists have said that weeks of flip-flopping in Budget briefings issued by Treasury sources left the UK economy on standstill, with the delivery of Rachel Reeves’ statement last week likely to now lead to an uptick in business sentiment in the coming months.
The latest PMI readings for October and November could be consistent with around 0.1 per cent growth on the quarter, according to some estimates.
“The Budget did nothing to boost growth prospects, but at least firms now have some clarity over taxes and can see that most of the hikes hit households, even if business rates are a sore point for retailers,” Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said.
“The employment balance continues to suggest downside risks to the job market but it stands in contrast with some other employment data, such as recovering vacancies as measured by the Indeed tracker.
“We expect GDP growth to pick up a little now that the Budget has passed in any case, which will support the demand for labour.”
Jordan-Doak added that the slowdown in inflation according to prices set by services firms surveyed by S&P Global provided further evidence that the Bank of England was “pretty much locked in” to cut interest rates at the next December meeting.
Governor Andrew Bailey made the deciding vote in a knife-edge call earlier this month to hold interest rates at four per cent.
He said he would wait for more data to show that disinflation in the UK economy was continuing, with recent jobs data and sluggish growth statistics likely to tip him over into voting for a cut at the next meeting.