UK companies reduced staffing levels at the steepest rate in four years last month as demand woes and fears around higher payroll costs gripped.
Private sector staffing levels fell for a fourth month running in January, according to S&P Global’s purchasing managers’ index survey, leading to the fastest pace in job reductions since the global financial crisis when excluding the pandemic.
The UK composite purchasing managers index edged higher from 50.4 to 50.6 in January, reflecting an increase in output.
Input inflation was said to have hit its highest in 18 months, the PMI surveys found, while services output prices were the strongest in 13 months.
“Stagflation conditions appeared to take a firmer hold at the start of the year,” S&P economics director Tim Moore said, referring to a combination of slow growth and elevated inflation.
The survey also found service sector output growth was slowing, with the UK service PMI falling to 50.8 in January from 51.1 in December.
“The twin perils of shrinking workloads and rising payroll costs meant that many service providers put the brakes on recruitment,” Moore added.
“Job cuts were seen in most sub-sectors, with leisure and hospitality businesses indicating a particularly sharp rate of decline.”
Economist Rob Wood at Pantheon Macroeconomics said the UK’s economy was being hit by “surging uncertainty around the Budget and President Trump’s tariff threats, along with payroll tax hikes”.
However, he said the headline PMI was “stabilising” in January, suggesting “growth has bottomed and should alleviate concerns that the UK is sliding into recession”, but UK GDP growth are currently looking like somewhere between -0.1% and 0.2% in the first quarter of the year, so risks remain.
With the Bank of England set to decide on interest rates on Thursday, the PMI data indicated services inflation was accelerating back above 5%.
Wood said he expects the BoE to cut rates by a quarter of a percentage tomorrow “but they will have to follow a middle ground between supporting growth and squashing inflation for the rest of the year”.
