UK employers cut staffing, turn more pessimistic as budget bites
UK PMI staffing index falls by most since Jan 2021
Companies plan to increase prices
Headline composite index holds at 50.5
Bank of England monitoring how companies respond to budget
Combines separate stories, adds market reaction and economist paragraphs 6-8
By William Schomberg
LONDON, Dec 16 (Reuters) -British businesses cut staffing by the mostsince the COVIDpandemic and reported the sharpest confidence dropalso since the lockdowns, according to two surveys that placed much of the blame on the new government's tax increases.
The preliminary S&P Global Flash Composite Purchasing Managers' Index for December and a quarterly survey by manufacturing body MakeUK, both published on Monday, added to other signs of a slowdown in the economy linked to the Oct. 30 budget of finance minister Rachel Reeves.
As well as not replacing staff who left, some firms cut hours and proceeded with previously planned restructurings.
Excluding the pandemic period, the fall in employment was the sharpest since the global financial crisis in 2009.
But the PMI's measure of prices charged by companies rose, potentially worrying the Bank of England's Monetary Policy Committee (MPC)which is watching for how employers respond to the higher social security contributions thatthey must pay.
Sterling briefly rose after the PMI was published as investors focused on the price pressures in the report.
"The MPC is now facing that nasty trade-offbetween slow growth and rising inflation, which will force it to cut interest rates only gradually next year," saidThomas Pugh, an economist at accountancy firm RSM UK.
"An early Christmas present on Thursday from the MPC seems very unlikely," he said, referring to theBoE's December rate decision,which is expected to keep borrowing costs on hold.
The headline PMI readingheld at 50.5, just above the 50.0 no-change level but below expectations in a Reuters poll of economists for a rise to 50.7.
LOSING MOMENTUM
Manufacturing activity fell to an 11-month lowand although the services sector improved, employment across both sectors contracted by the most since January 2021.
By contrast, prices charged by firms rose at the steepest pace in nine months as input costs including salaries went up.
"Economic growth momentum has been lost since the robust expansion seen earlier in the year, as businesses and households have responded negatively to the new Labour government's downbeat rhetoric and policies," said S&P Global Market Intelligence's chief business economist, Chris Williamson.
Make UK'ssurvey showed thesharpest loss of confidence among manufacturerssince the start of the pandemic.
"Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis," saidFhaheen Khan, senior economist at Make UK.
As well as a 25 billion pound ($32 billion) increase in social security contributions by employers announced by Reeves in her budget, Britain's minimum wage is due to rise by almost 7% in April.
Other recent surveys have shown a drop in hiring intentions by employers.
Official data last weekshowed Britain's economy shrank in September and October in the run-up to the budget - the first back-to-back declines in outputsince 2020.
Writing by William Schomberg
Editing by Gareth Jones
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