Firms slash jobs after budget; UK negotiates ‘golden share’ in Royal Mail takeover – business live
UK firms cut staffing by most in almost four years
Newsflash: UK companies are cutting jobs at the fastest rate since early in the Covid-19 pandemic, a new survey of British purchasing managers shows.
S&P Global’s latest flash PMI report, just released, shows that staffing numbers are falling in December, for the third month in a row, as firms react to October’s tax-raising budget.
The rate of job shedding across the private sector economy was the fastest for almost four years, led by services companies.
Firms are choosing not to replace voluntary leavers due to rising employment costs, the report says, such as forthcoming increases in employers’ National Insurance contributions and the minimum wage.
The increase in employers’ NICs rates is also leading to cutbacks to working hours and longer-term efforts to restructure workforces, S&P Global says
The PMI report shows that there was marginal growth across the private sector this month; its Composite Output Index was unchanged at 50.5, just over the 50-point mark showing stagnation.
But while the services sector grew, there was another contraction in manufacturing.
Worryingly, business optimism fell to the lowest level since December 2022, largely due to an ongoing slide in service sector confidence.
Chris Williamson, chief business economist at S&P Global Market Intelligence says:
“Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise.
“Economic growth momentum has been lost since the robust expansion seen earlier in the year, as businesses and households have responded negatively to the new Labour government’s downbeat rhetoric and policies. Business confidence has sunk to a two-year low as companies weigh up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget. The survey’s price gauges are indicating that inflation is turning higher again.
“Firms are responding to the increase in National Insurance contributions and new regulations around staffing with a marked pull-back in hiring, causing employment to fall in December at the fastest rate since the global financial crisis in 2009 if the pandemic is excluded.
“While the December PMI is indicative of the economy more or less stalled in the fourth quarter, the loss of confidence and increased culling of jobs hints at worse to come as we head into the new year. Policymakers at the Bank of England may be cautious about cutting interest rates, however, given the resurgence of inflation being signalled, adding further to downturn risks in 2025.”
Key events
The UK’s Office for Budget Responsibility (OBR) has been commissioned for an Economic and Fiscal Forecast which will be published on 26 March 2025.
This is in line with the Budget Responsibility and National Audit Act 2011 which requires the OBR to produce two forecasts each financial year. This will be accompanied by a statement to Parliament from the Chancellor, the Treasury has announced.
They add:
The Chancellor remains committed to one major fiscal event a year to give families and businesses stability and certainty on upcoming tax and spending changes and, in turn, to support the government’s growth mission.
That suggests it will be more of a ‘spring statement’ than a full-blown budget (following the one at the end of October).
⚠️ UK TO PUBLISH LATEST OBR ECONOMIC AND FISCAL FORECASTS ON 26 MARCH – GOVT STATEMENT
**UK FINANCE MINISTER REMAINS COMMITTED TO ONE MAJOR FISCAL EVENT A YEAR
— PiQ (@PiQSuite) December 16, 2024
French broadcaster Canal+ is having a rather bruising start to life on the London stock markets.
Shares in Canal+ have fallen by over 20% since trading began. Having started trading at 290p at 8am, they’ve now fallen to 227p, a drop of 22%.
Today’s UK PMI report reinforces fears that growth risks are to the downside and inflation risks are to the upside as we head into 2025.
So warns Daniel Mahoney, UK economist at Handelsbanken, who says:
There now seems to be growing evidence that firms are responding to the increase in employer’s NI and other measures around employment with a reduction in hiring, and it is notable that this is something that we have been hearing anecdotally from a range of clients. Moreover, the PMI’s price pressure indicators appear to be indicating that inflation could be turning higher.
This backdrop leaves the [Bank of England’s] MPC with a difficult set of trade-offs, with the rate cutting cycle likely to continue at a very cautious pace. Our central view remains that rate cuts will only happen at a pace of just one 0.25pp reduction per quarter through 2025.
The drop in staffing levels at UK companies this month, and the fall in business optimism, suggest the Bank of England should cut interest rates at its meeting this week.
So argues Professor Costas Milas of the University of Liverpool, who tells us:
The latest surveys (you reported on today) suggest, or at least hint, that we are “sleepwalking” towards a recession. Whether this turns out to be true (or not), the BoE’s MPC has a unique opportunity to take action this week by cutting interest rates. Many worry that inflation will rise based on data to be released this week. Such a rise should only be temporary.
In new work of mine (co-authored with Dr Papapanagiotou) on the out-of-sample forecasting performance of UK inflation, we find that both Divisia M4 growth and global supply pressures forecast future inflation (up to four quarters ahead) better than almost every other variable you can think of. Divisia M4 growth is extremely weak (just above 0% and, indeed, at historical lows) whereas global supply pressures are also extremely weak.
A great chance for the MPC to surprise positively this week rather than waiting for February 2025 when, perhaps, it will have left it too late!
A cut on Thursday would indeed be a surprise, though. The money markets are indicating there’s an 84% chance of no change in UK interest rates this week.
UK retail footfall drops in blow to shops
UK retailers are facing the prospect of ‘bleak’ Christmas trading, after a drop in visits to the high street, retail parks and shopping centres in the last fortnight.
Footfall at retailers over the last two weeks has averaged -3.1% below the same weeks last year according to new data from Rendle Intelligence and Insights. That’s a blow, as Christmas trading in 2023 was not great either.
Diane Wehrle, CEO of Rendle Intelligence and Insights, explains:
The subsequent two weeks trading since Black Friday seems to have been lacklustre at best. Experience has shown that trading plateaus in the week or so following Black Friday, however, a week on week drop in footfall into stores of -9.1% followed by a rise of only +7.5% is exceptionally disappointing.
Particularly as it means that footfall over the last two weeks has averaged -3.1% below the same weeks last year, which was recognised as a pretty disastrous Christmas trading period. Moreover, footfall into stores last week dropped further behind 2023 than the week before (-3.3% last week vs -2.8%) the week before last.”.
But… with Christmas falling on a Wednesday there is a full week and then two additional days left to capture consumer spend.
Wehrle says:
“We might yet see a Super Saturday on 21st December!”
Unite general secretary Sharon Graham is also backing the Royal Mail agreement…
“This agreement opens the door to a better future for Royal Mail and its workforce.
It is now vital that EP and the government continue to work closely with Unite CMA and the CWU to ensure that Royal Mail delivers positive outcomes for its staff and its customers.”
Today’s PMI report suggests the UK economy could contract by 0.3% in the final quarter of 2024, suggests Elias Hilmer, assistant economist at Capital Economics.
Hilmer adds:
That said, we doubt the economy will be quite as weak as that given the PMIs do not capture rises in government spending.
Daniel Křetínský says his EP Group is “very pleased” to have reached an agreement with the Business Secretary to allow its takeover of Royal Mail.
Křetínský promises to be a good custodian of the postal operator, saying:
We would like to thank the Business Secretary for the constructive negotiations that have resulted in unprecedented commitments and undertakings that demonstrate the high regard EP Group has for Royal Mail as an institution, the service it provides to millions of UK homes and businesses, and Royal Mail employees.
EP Group is a long term and committed investor with a mission to make Royal Mail a successful modern postal operator with high quality service and products for its customers. We look forward to delivering on this mission alongside our partners in government.
UK taking ‘golden share’ in Royal Mail to smooth takeover
Back to the Royal Mail takeover, where the government has just confirmed it has reaches agreement with Royal Mail’s prospective new owners, and approved EP Group’s takeover.
Business secretary, Jonathan Reynolds says it shows the government is working hand in hand with private sector to improve crucial public services.
Under the deal, the UK has negotiated a ‘Golden Share’ in Royal Mail. This should prevent the headquarters of Royal Mail, or its tax base, being moved abroad without UK government approval.
Reynolds said:
For too many years progress on securing a stable future at Royal Mail has stalled, but from day one we have been committed to providing a secure future for thousands of workers and customers.
Today’s agreement is yet another example of this Government’s commitment to working hand in hand with business to generate reform give respite to people right across the UK, as we are working towards ensuring a financially stable Royal Mail with protected links between communities other providers can’t reach.
I’d like to thank EP Group and Daniel Křetínský for their constructive approach to our discussions and their commitment to protecting this national icon. I look forward to working with them to fix the foundations and ensure Royal Mail continues to deliver for the communities and businesses who rely on it most.
UK firms cut staffing by most in almost four years
Newsflash: UK companies are cutting jobs at the fastest rate since early in the Covid-19 pandemic, a new survey of British purchasing managers shows.
S&P Global’s latest flash PMI report, just released, shows that staffing numbers are falling in December, for the third month in a row, as firms react to October’s tax-raising budget.
The rate of job shedding across the private sector economy was the fastest for almost four years, led by services companies.
Firms are choosing not to replace voluntary leavers due to rising employment costs, the report says, such as forthcoming increases in employers’ National Insurance contributions and the minimum wage.
The increase in employers’ NICs rates is also leading to cutbacks to working hours and longer-term efforts to restructure workforces, S&P Global says
The PMI report shows that there was marginal growth across the private sector this month; its Composite Output Index was unchanged at 50.5, just over the 50-point mark showing stagnation.
But while the services sector grew, there was another contraction in manufacturing.
Worryingly, business optimism fell to the lowest level since December 2022, largely due to an ongoing slide in service sector confidence.
Chris Williamson, chief business economist at S&P Global Market Intelligence says:
“Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise.
“Economic growth momentum has been lost since the robust expansion seen earlier in the year, as businesses and households have responded negatively to the new Labour government’s downbeat rhetoric and policies. Business confidence has sunk to a two-year low as companies weigh up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget. The survey’s price gauges are indicating that inflation is turning higher again.
“Firms are responding to the increase in National Insurance contributions and new regulations around staffing with a marked pull-back in hiring, causing employment to fall in December at the fastest rate since the global financial crisis in 2009 if the pandemic is excluded.
“While the December PMI is indicative of the economy more or less stalled in the fourth quarter, the loss of confidence and increased culling of jobs hints at worse to come as we head into the new year. Policymakers at the Bank of England may be cautious about cutting interest rates, however, given the resurgence of inflation being signalled, adding further to downturn risks in 2025.”
French government bonds weaken after surprise Moody’s downgrade
Back in the financial markets, France’s risk premium has risen this morning after a surprise credit rating downgrade.
Ratings agency Moody’s surprised Paris on Friday night by lowering its rating on French debt to “Aa3” (its forth-highest rating) from “Aa2”.
Moody’s took the unscheduled move following the collapse of Michel Barnier’s government this month, after MPs refused to accept €60bn of tax hikes and spending cuts in his proposed budget.
Moody’s says:
“Looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.
“As a result, we forecast that France’s public finances will be materially weaker over the next three years compared to our October 2024 baseline scenario.”
French bonds are a little weaker this morning, pushing up the yield (or interest rate) on its 10-year debt by around 2 basis points, to 3.05%.
German 10-year bunds are little changed, at a yield of 2.25%, so the gap between Paris and Berlin’s borrowing costs has widened.
Kathleen Brooks, research director at XTB, says:
The move by Moody’s brings it in line with Fitch and S&P, but it highlights the focus on French budget deficits and the risks they pose to bond market stability. French bond yields are a touch higher on Monday, but are generally stable.
This comes after bonds sold off in Europe and in the US last week. The French 10-year bond yield rose 16bps last week, the UK yield rose by 18bps, and the 10-year Treasury yield also rose by 18bps. If we see continued upward pressure on yields, then bond market risk could be front and centre after the New Year.
