Pressure on UK labour market; demand weakens, staff costs up: S&P GMI

The country’s performance on the jobs front at the start of the second quarter (Q2) this year was the weakest among all the major economies covered by the PMI data, led by a steep reduction in manufacturing workforce numbers, according to a commentary by S&P Global Market Intelligence (S&P GMI).

Rising labour costs in recent months have been exacerbated by tariff-related concerns and uncertainty, which have weighed heavily on business confidence, paving the way for further job losses in the coming months unless growth expectations improve materially from the current depressed level, it noted.

Following growth across the UK economy in Q1 2025, PMI data for April showed a marked loss of momentum and renewed risks of an economic downturn.

The PMI data have also shown a period of persistent weakness in underlying demand conditions facing UK firms, with inflows of new business having fallen in each month since December last year amid reports of fragile consumer confidence, tighter budgets, increased scrutiny around spending and heightened geopolitical uncertainty.

April's decrease in new business was in fact the steepest recorded since the sharp drop in demand associated with the fallout from the Liz Truss 'mini budget' in late 2022. This backdrop of weakened demand has contributed to companies adopting a more cautious approach to hiring, the commentary observed.

Besides weak demand, another key factor driving a cutback in recruitment has been last October's Autumn Budget. Changes to employers' National Insurance contributions—a form of tax—and a higher minimum wage have led many businesses to reassess their workforce needs, according to anecdotal evidence collected in the PMI surveys.

This ongoing cutback in payroll numbers is a clear shift from the strong employment growth seen in the early post-pandemic months. In fact, the reduction in workforce numbers observed in February this year was the most pronounced since November 2020.

While salary cost pressures have significantly diminished since their peak in 2022, they continue to run above the long-run average and have even reaccelerated, with data from October 2024 onward indicating monthly increases in these pressures.

Fibre2Fashion News Desk (DS)