UK businesses are cutting jobs at the fastest pace since February in response to higher taxes and global uncertainty caused by Donald Trump’s tariff threats, according to a closely watched survey of the private sector.
The flash S&P Global purchasing managers’ index (PMI) for July showed a decline in fresh orders, hitting jobs and dragging down growth.
According to the report: “Survey respondents widely commented on the need to reduce headcounts in response to higher payroll costs and subdued customer demand.”
Posing a dilemma for the Bank of England as inflation remains above its target, the early snapshot of activity this month showed manufacturing growth was static while sales in the services sector weakened.
Central bank officials meet in a fortnight and are widely expected to cut interest rates from 4.25% to 4% to lift the UK’s stuttering economy.
Surveys of UK businesses have shown that extra employment taxes in the last budget and Trump’s tariff threats have slowed the economy. The most recent official estimates show the economy contracted in April and May.
The latest figures showed unemployment nudged up to 4.7% in May, hitting the highest level in four years, while wage growth slowed for a third consecutive month, and employers cut back on hiring.
However, inflation is running at 3.4%, above the Bank’s 2% target. Threadneedle Street has forecast that prices growth is unlikely to fall significantly until next year.
According to James Smith, an economist at ING, the latest survey figures “perfectly encapsulate the headache the Bank of England faces right now”.
The flash S&P Global PMI, which covers the services and manufacturing sectors, dropped from 52 to 51 in July. A figure above 50 indicates expansion.
Most of the drop was blamed on the services sector, which fell from 52.8 to 51.2, while the manufacturing output index rose to 50.
Smith said: “Higher payroll taxes and a chunky rise in the national living wage back in April are exerting more significant downward pressure on staffing numbers, according to the latest PMI.
“But the PMI also suggests these policy changes are keeping upward pressure on prices. We’ve seen hints of this in the [inflation] data, principally in food, where inflation rates have picked up over and above what we’ve seen in the eurozone. Pressure on staffing costs also likely explains the stickiness in hospitality inflation through the spring.’
The PMI report said export sales decreased for the ninth consecutive month, “albeit to the least marked extent since January”.
Firms said the uncertainty created by Trump’s tariff threats was a factor along with competition from Chinese companies shut out of the US by high levies on many goods.
Looking ahead, businesses said they expected the global turmoil to calm down and interest rates to fall, making them optimistic about the next 12 months. They also predicted that a recent increase in household savings would reverse and that the more benign outlook would encourage consumers to begin spending again.
Chris Williamson, the chief business economist at S&P Global Market Intelligence, said the survey showed the UK economy was struggling to expand as it moved into the second half of the year.
“Output growth weakened to a pace indicative of the economy growing at a mere 0.1% quarterly rate, with risks tilted to the downside in the coming months,” he said.
