The Bank of England’s regulator survey of company executives shows UK businesses cut jobs at the fastest pace for almost four years in August amid pressure from higher taxes and labour costs.
Annual employment growth among firms has been gradually slowing for most of the last two years, falling by 0.5% over the three months to August.
Expected employment growth has also fallen over the last two years, and more so over the recent past. Year-ahead firm employment growth expectations have declined from 0.7% to 0.1% between the three months to November and the three months to February.
This means firms expect a further fall in employment growth of 0.4 percentage points over the next year. Expected employment growth is now the lowest it has been since the COVID-19 pandemic.
Splitting the data down into goods and services, employment growth in recent years has been higher in service sector firms.
But these service sector firms have also experienced more of a slowing in employment growth over recent months, and they have reported a sharper slowing in expectations for future employment growth since November.
Companies are still grappling with rising operational expenses following a series of measures from last year’s autumn budget that took effect in April.
These changes included hikes in the national minimum wage, national insurance contributions, and business rates for many firms.
On top of that, businesses have faced added pressure from escalating global trade disputes, driven by US President Donald Trump’s recent overhaul of American tariffs.
Since April, about two-thirds of businesses (66%) reported a decline in profits. The figures also reveal that 34% have raised their prices, while 46% have cut back on staff in response to the increased costs.
Increased NI contributions weigh heavily.
In the three months to January, firms were asked about their expected response to the announcements in the 2024 Autumn Budget on employer National Insurance contributions (NICs).
This stated that employer NICs would increase from 13.8% to 15% and that the threshold at which employers start paying NICs for each employee would be reduced. These changes are partly offset by an increase in the Employment Allowanc,e which employers can claim on their NICs liabilities.
62% of firms reported that they would accept lower profit margins, 56% of firms said they would increase prices, 53% would reduce employment, and 38% of firms expected to pay lower wages than they otherwise would have.
The responses to the survey question indicate how firms plan to adjust to tCs increase, but they do not quantify the magnitude of any adjustment.
However, it is also possible to compare the overall expectations of firms that plan to respond in different ways to give more of a sense of the importance of these changes to NICs.
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