UK business activity grows in January, private sector employment falls again

(Sharecast News) - UK business activity continued to grow in January, but employment in the private sector fell for the fourth month in a row, according to a survey released on Friday. The S&P Global flash UK PMI composite output index rose to 50.9 from 50.4 in December. A reading above 50.0 indicates expansion, while a reading below signals contraction.

The flash services PMI business activity index nudged up to 51.2 in January from 51.1 a month earlier, while the manufacturing output index remained in contraction territory at 49.3, up from 45.9 in December.

The survey showed that employment levels fell for the fourth consecutive month due to rising cost pressures, with input price inflation rising to its highest since May 2023. Respondents pointed to hiring freezes and the non-replacement of voluntary leavers amid rising payroll costs.

Many firms suggested the upcoming hike in employers' national insurance contributions had led to cutbacks to recruitment plans. The impact of the post-Budget slump in business confidence was also mentioned.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The loss of confidence, combined with widespread concerns over higher staff costs associated with the Budget, pushed employment sharply lower again.

"Barring the job cutting seen during the pandemic, the rate of job losses signalled by the PMI over the past two months has been the highest since the global financial crisis in 2009."

Elias Hilmer, assistant economist at Capital Economics, said: "Overall, today's data release won't alleviate the Bank of England's concerns about the weakness of activity.

"As a result, we still think the Bank will cut interest rates from 4.75% now to 4.50% in February, but the further strengthening in price pressures suggest it will cut rates only gradually thereafter."