British businesses faced a rocky December as economic growth nearly stalled, and job cuts surged at the fastest rate in nearly four years, a reflection of shaken confidence following the government’s October budget.
The latest S&P Composite Purchasing Managers’ Index (PMI) for the UK edged down to 50.4 in December, barely clinging above the crucial 50-point threshold that separates growth from contraction. This was the lowest reading since October 2023 and just a hair below November’s 50.5, reinforcing concerns about the country’s economic trajectory.
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Budget Blues Weigh Heavy
The slowdown follows Finance Minister Rachel Reeves’ budget announcement on October 30, which introduced hefty tax hikes for businesses to finance increased public spending. The impact has been profound, with a slump in corporate morale reverberating through the economy. According to recent data, Britain’s economy stagnated in the three months leading up to September. The Bank of England’s forecast of flatlining growth in the final quarter of 2024 appears to align with these PMI figures.
Tim Moore, Economics Director at S&P Global Market Intelligence, highlighted the persistent gloom:
“December saw no improvement in business optimism following the budget, with growth expectations for the year ahead stuck at November’s 23-month low.”
Job Cuts Hit Hard
Companies slashed jobs at a rate not seen since January 2021, during the height of COVID-19 lockdowns. Rising costs, including a looming increase in employer social insurance contributions set for April, were the main driver of these cuts, according to S&P Global. Nearly one in four firms reported a reduction in payroll, marking the sharpest decline in over 15 years outside of pandemic conditions.
Costs Climb, Optimism Fades
The PMI’s measure of future output hit its lowest point since December 2022, mirroring the uncertainty sparked by former Prime Minister Liz Truss’ “mini-budget.” Meanwhile, input costs for businesses rose at their fastest pace since April, squeezing margins further.
Sectors across the board felt the strain. December’s services PMI, a significant contributor to the composite index, was revised down to 51.1 from an earlier estimate of 51.4. Manufacturing fared even worse, with its PMI dropping to an 11-month low of 47.0, down from an initial 47.3.
Looking Ahead
While business groups have criticised the budget’s immediate impact, some economists believe increased government spending could provide a short-term boost to the economy in 2025. For now, however, companies are grappling with an increasingly challenging environment, where rising costs and regulatory pressures continue to erode confidence.
This ongoing turbulence leaves many questioning how long UK businesses can tread water in such stormy conditions.
