UK Businesses Cut Jobs For Fourth Consecutive Month

A Bank of England survey has revealed the continuing impact of payroll tax increases on hiring and employment in the UK, with data for September recording the longest single period of falling employment since 2021.

British companies reduced employment by an annual rate of 0.4 per cent last month, according to a Bank of England (BoE) survey of chief financial officers published on Thursday (2 October) and reported by The Financial Times. 

The fall followed declines in the previous three months and reversed the almost continuous expansion in jobs since September 2021. 

Businesses’ expectations of annual growth in headcount dropped to zero in the three months to September, the worst outlook since the start of the year and the joint lowest since 2020, when Covid-19 led to a rise in lay-offs. 

Businesses have blamed tax increases in Chancellor Rachel Reeves’ first Budget last October for the pullback in hiring, which has been reported in a string of other surveys. A £25bn rise in national insurance contributions, announced in the fiscal event, took effect in April along with a rise in the minimum wage. 

After last year’s fiscal event, which raised taxes by £40bn in total, Reeves said she would “not be coming back with more tax increases”. 

But on Monday (29 September) Downing Street refused to rule out the possibility that Reeves would break Labour’s manifesto pledge to not increase income tax, value added tax or national insurance rates in order to help fill a fiscal hole of as much as £30bn. 

“Everyone can see in the last year the world has changed and we’re not immune to that change,” Reeves told the Labour party conference. 

Wages and Prices Under Pressure

The BoE survey, which covered 2,000 companies and was conducted in the first half of September, suggested the increase in employer NICs and the minimum wage was adding to pressures on wages and prices.

Companies lifted prices at a faster rate last month than in August, according to the survey, forecasting price growth of 3.7 per cent in the year ahead, up from 3.5 per cent previously.

Business inflation expectations for the year ahead also edged up. [This was later revised downwards from 3.1 per cent to 3 per cent – unchanged from the previous month – in a correction made by BoE.]

Meanwhile, business wage growth expectations for year ahead, a key indicator of underlying inflation, remained elevated at an annual rate of 3.6 per cent in the three months to September, according to the survey. [The BoE’s revision now shows the one-year wage growth expectations at 3.5 per cent in August and 3.8 per cent in September.]

Robert Wood, economist at Pantheon Macroeconomics, a consultancy, said: “Employment falls fail to open spare capacity so wage and price pressures remain stubbornly too high.”

The BoE survey would keep the Monetary Policy Committee “cautious”, he added, noting that the figures were consistent with no more interest rate cuts this year — as priced in by financial markets. 

This week, Sarah Breeden, BoE deputy governor, said the BoE should reduce inflation without hitting jobs and output. 

Asked about their reaction to the increase in NICs, 42 per cent of companies surveyed said they were cutting headcount, while 38 per cent reported increasing prices. Two-thirds of businesses reported lowering profit margins. 

A quarter of businesses said they were cutting jobs in response to the rise in the minimum wage, with 37 per cent reporting putting up prices.

Source: Financial Times