UK businesses are shedding jobs at the fastest pace in five months, as rising payroll taxes, sluggish demand, and mounting fears over US trade tariffs take a toll on confidence and operating costs, according to new industry data.
The latest flash Purchasing Managers’ Index (PMI) from S&P Global shows that economic momentum continued to weaken in July, with private sector activity slowing and fresh orders declining. The composite PMI fell from 52 in June to 51 this month, indicating only marginal growth. A figure above 50 suggests expansion, while below signals contraction.
The report also revealed that companies across sectors—particularly in services—have begun reducing staff numbers in response to surging payroll expenses and softer customer demand.
“Survey respondents widely commented on the need to reduce headcounts in response to higher payroll costs and subdued customer demand,” S&P Global said in its findings.
The services sector, which accounts for the bulk of the UK economy, saw its PMI fall sharply from 52.8 to 51.2, while manufacturing output edged slightly higher to 50.0, suggesting a near standstill in factory activity.
The findings follow a difficult few months for the UK economy. Official data shows it contracted in both April and May, while unemployment rose to 4.7% in May—the highest level in four years. Wage growth, meanwhile, has declined for three consecutive months, and inflation remains stuck at 3.4%, well above the Bank of England’s 2% target.
Economists say a combination of policy decisions and external pressures is squeezing both businesses and consumers. “Higher payroll taxes and a chunky rise in the national living wage back in April are exerting more significant downward pressure on staffing numbers,” said James Smith, economist at ING. “At the same time, these policy changes appear to be keeping upward pressure on prices.”
Trade tensions, especially with the United States, have added to the gloom. Uncertainty over tariffs introduced by President Trump has contributed to declining export orders for the ninth consecutive month. UK firms also cited increased competition from Chinese manufacturers redirecting goods to Europe amid restrictions in the US market.
Despite the weak outlook, some businesses remain cautiously optimistic. Many expect interest rates to fall soon, easing borrowing costs, and hope that household savings accumulated during recent years will help revive spending.
Still, Chris Williamson, chief business economist at S&P Global, warned of underlying fragility: “Output growth weakened to a pace indicative of the economy growing at a mere 0.1% quarterly rate, with risks tilted to the downside.”
With the Bank of England expected to cut interest rates from 4.25% to 4% in early August, all eyes will be on whether monetary easing can restore confidence and support growth in an increasingly fragile economic environment.
