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British services firms cut jobs at the fastest pace since 2020 in February, as businesses prepared for upcoming increases in employment taxes and the minimum wage, according to a new industry survey. The latest data from the UK S&P Composite Purchasing Managers’ Index (PMI) underscores rising concerns about economic uncertainty and stagflation risks.
Employment Decline Amid Rising Costs
While the preliminary PMI reading for February edged up to 51.0 from 50.8 in January, indicating slight expansion, it remained below the initial estimate of 51.1 and only marginally above the 50-point threshold separating growth from contraction.
However, the most striking indicator was the sharp drop in the survey’s employment gauge, which fell to 43.9 from 45.1, marking its lowest level since November 2020. Excluding the COVID-19 pandemic, this is the weakest reading since the 2007-08 global financial crisis.
Experts note that a combination of dampened business expectations and rising input prices led to widespread job shedding in the services sector.
Inflation Pressures and Business Confidence
Although input cost inflation eased slightly for the first time since July 2024, dropping to 65.7 from January’s nine-month high of 66.4, price growth remains a key concern. Firms continue to pass on higher costs to consumers, with services sector inflation only marginally slowing from its 13-month high in January.
These persistent inflationary pressures are a focal point for the Bank of England (BoE), which closely monitors service-sector price trends when determining the pace of future interest rate adjustments.
Tax Burden and Economic Uncertainty Weigh on Businesses
Business confidence dipped to a two-year low, with firms citing mounting concerns about the economic outlook and the financial strain of the upcoming £25 billion ($32 billion) increase in employers’ social security contributions.
The PMI survey also revealed growing unease about rising payroll costs, which is contributing to a broader decline in business sentiment for the next 12 months. This downturn in confidence reflects ongoing uncertainty about inflation, wage pressures, and potential changes in monetary policy.
Conclusion
As UK businesses brace for higher employment taxes and labor costs, the latest PMI data signals an increasingly fragile services sector. With job losses accelerating and inflationary pressures persisting, firms face significant challenges navigating the evolving economic landscape. The coming months will be crucial in determining whether policymakers can strike a balance between supporting business confidence and controlling inflation.
Tax Hikes: How UK Businesses Are Responding
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