British businesses reduced their workforce numbers at the most rapid rate seen since the height of the pandemic in the run-up to Chancellor Rachel Reeves' Autumn Budget, according to a key Bank of England survey.
Sharpest Employment Drop in Over Four Years
The Bank of England's Decision Maker Panel survey, which polls chief financial officers, found that private sector employment plummeted by 1.8 per cent in November. This represents the most severe monthly contraction since July 2021.
Looking ahead, finance directors indicated they expect to trim their workforces by an average of 0.7 per cent over the next year, marking the most pessimistic outlook since October 2020. This follows a period of significant market turbulence and business uncertainty driven by pre-Budget speculation.
Inflation Concerns Clash with Weak Job Market
The survey data presents a complex picture for the Bank of England's Monetary Policy Committee (MPC). While job growth is collapsing, inflation expectations are moving in the opposite direction.
Firms now expect Consumer Price Index (CPI) inflation to be three per cent in three years' time, up from previous estimates. One-year ahead expectations held steady at 3.4 per cent. This is notably higher than the Bank's official two per cent target, with the latest official data showing price growth at 3.6 per cent for the year to October.
Rob Wood, chief UK economist at Pantheon Macroeconomics, stated that the "chaotic pre-Budget tax hike speculation" led directly to the sharp decline in employment. He argued that this weak jobs data essentially guarantees a policy response.
Implications for Monetary Policy and Business Confidence
"Sharply weaker employment gains nail a December rate cut," Wood said. "Inflation or official labour market data would have to surprise hugely to stop the MPC reducing rates in December now." He predicts a 25 basis point reduction in interest rates later this month.
However, Wood also noted that structural shifts in the labour market are continuing to support wage growth, a factor that will require the MPC to proceed with caution despite the weak hiring figures.
The survey also revealed a marked drop in business confidence, persistent pressures from payroll costs, and further delays in investment plans. Some analysts suggest the forthcoming Budget may provide a degree of stability for firms in the months ahead, though sectors like hospitality still face challenges from announced tax and policy changes.
All eyes will now be on Bank of England Governor Andrew Bailey and other MPC members, who are expected to comment on the impact of the Chancellor's measures and assess whether they have alleviated cost-of-living pressures for households.
