The U.K.’s service sector cut jobs in December at the fastest pace in almost four years amid concerns over weak consumer demand and higher payroll costs.
The closely watched S&P Global purchasing managers’ index (PMI) rose to 51.1 in December, a slight improvement on the 50.8 recorded for November.
Although it was the fourteenth consecutive month the reading came in above 50, the mark that separates growth from contraction, the latest figure signaled only a marginal expansion of business activity.
“A post-Budget slump in business optimism persisted in December, with output growth expectations for the year ahead unchanged from November’s 23-month low,” said Tim Moore, economics director at S&P Global Market Intelligence.
“Concerns about the impact of rising payroll costs, alongside a general unease about the climate for business investment, were reported as the main factors weighing on prospects for growth in 2025,” Moore added.
The survey revealed that employment was a “weak spot” for sector, with 23% of respondents saying they had reduced their headcounts in December, while only 12% indicated a rise.
“Excluding the pandemic, this represented the steepest pace of job shedding for more than 15 years,” said Moore.
At the end of October, Chancellor of the Exchequer Rachel Reeves rolled out £40 billion ($51 billion) in tax hikes in her first budget after the Labour Party’s landslide victory in July’s election. Employers were hit with an increase to the National Insurance (NI) payroll tax while also paying higher minimum wages.
Before the election, Labour had pledged to make Britain the fastest growing economy in the Group of Seven, but the economy flatlined between July and September, and the Bank of England expects growth to stagnate in the final three months of the year.
The U.K. had the fastest growing economy in the G7 between January and June, before Labour came to power.
Business leaders have repeatedly expressed their concerns to the new government that its tax hikes were putting growth and jobs at risk, but Reeves has repeatedly said her party found a £22 billion “black hole” in the public finances after the election, requiring her to make “tough decisions.”
Meanwhile, another survey conducted by the British Chamber of Commerce found that confidence among U.K. firms has fallen to its lowest level since the aftermath of the mini-budget in late 2022 that forced Liz Truss to step down as prime minister.
Nearly two-thirds of respondents told the chamber that they’re worried about taxes following the Labour budget, and more than half expect to raise prices in the next three months.