UK businesses cut jobs at the fastest pace in four years over the summer, according to a Bank of England survey highlighting the impact from tax rises on employers.
The monthly snapshot from a survey of chief financial officers at British businesses of all sizes showed firms reduced employment by an annual rate of 0.5% in the three months to August, the fastest since 2021.
There was also a marked decline from the previous month in firms’ employment intentions for the coming year. Expectations for jobs growth weakened by 0.3 percentage points to 0.2%.
Labour has come under pressure over its economic management as the chancellor, Rachel Reeves, prepares to hold a late November budget, amid speculation that further tax increases could be required to cover a multibillion-pound shortfall in the public finances.
Business leaders have warned Reeves that her first autumn budget measure to increase employer national insurance contributions (NICs) by £25bn from April this year has forced them to cut jobs and raise prices.
Almost half of the 2,130 companies surveyed by the Bank said they were cutting the number of employees as a result of the change.
The monthly Decision Maker Panel survey, which is closely monitored by Threadneedle Street’s interest rate-setters, also showed 66% of firms reported lowering profit margins as a result of the change. As many as 34% raised prices, while 20% said they were paying lower wages than they otherwise would have done.
However, the Bank said fewer firms were reporting price increases, lower employment or lower wages in response to the employer NICs changes than it had expected in the three months to January, before the changes were implemented.
Economists said falling employment levels were a risk the Bank would take into account when considering whether to cut interest rates at its next policy meeting on 18 September. Financial markets anticipate the Bank will keep borrowing costs unchanged at 4%.
“Stubborn wage and price pressures should keep the MPC [monetary policy committee] cautious, but falling employment is a building risk,” said Rob Wood, the chief UK economist at the consultancy Pantheon Macroeconomics.
Reeves acknowledged on Wednesday that the UK economy was “not working well enough for working people” as she announced the date of her second budget as 26 November.
The later than usual date is likely to lead to weeks of speculation about how the Treasury will raise additional revenue, but the chancellor hopes to use the time to set out new pro-growth reforms.
