The services sector is cutting jobs at the strongest pace in almost four years
- The S&P noted that service companies “commented heavily” on hiring moratoriums
- In the last budget, Rachel Reeves announced an increase in national insurance rates
Service sector employment fell at the fastest pace in almost four years at the end of 2024 as bosses responded to weaker demand and higher labor costs.
The closely watched S&P Global UK Services Purchasing Managers’ Index (PMI) shows that December’s staff fall was the biggest since January 2021.
Excluding the years distorted by the Covid-19 pandemic, this was the steepest decline in more than fifteen years.
The monthly survey found that 23 percent of respondents reported a decrease in headcount, compared to 12 percent who reported an increase.
The S&P noted that service companies “commented heavily” on hiring moratoriums or not replacing departing employees due to higher personnel costs.
In October, Chancellor Rachel Reeves revealed that employers would pay a 15 per cent national insurance levy on staff salaries above £5,000 from April, instead of the current rate of 13.8 per cent on wages above £9,100.
S&P said there was ‘anecdotal evidence’ that customer confidence fell following the announcement of an upcoming rise in NI contributions.
Letting go: Services employment fell at the fastest pace in nearly four years in December due to weaker demand and higher labor costs
Reeves further stated that the national living wage would rise by 77p to £12.21 per hour, while the national minimum wage for 18 to 20 year olds would rise by 16.3 per cent to £10 per hour.
Many leading retailers have warned that the measures could force them to cut and pay jobs, raise prices or close stores.
Tim Moore, economics director at S&P Global Market Intelligence, said: “Faced with weak demand and rising labor costs, many service providers have chosen to curtail hiring and delay the addition of positions in December.”
He also noted a “post-Budget dip” in business optimism, amid concerns about rapidly rising labor costs and a “general unease about the business investment environment.”
At the same time, S&P said input cost inflation has risen at the fastest pace since April due to rising wages and raw material costs, while new orders in the service economy are “nearly stagnant” overall.
However, the S&P still gave a final PMI reading of 51.1 for business activity last month, down from 50.8 in November, and has breached the neutral 50.0 mark for the fourteenth month in a row.
Any number above 50 indicates growth, while all numbers below that number indicate contraction.
The S&P figures come four days after the manufacturing PMI fell one point to an 11-month low of 47 in December.
Production, employment and new orders all fell at a faster pace than the previous month due to customer destocking, weaker market confidence and corporate restructuring ahead of the coming increase in labor costs and national insurance rates.
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