Business leaders plan to cut costs and curb hiring in response to government tax hikes set out in the autumn budget, with employment expectations taking the sharpest drop since the start of the coronavirus pandemic.
A net two-thirds of finance directors said they did not expect to increase employment levels this year, the highest level in four years, with a net 26% feeling more pessimistic about the outlook for their business than three months ago , the first time sentiment had slipped into negative territory in 18 months, according to the latest survey by accounting firm Deloitte.
More than half of CFOs rated cost reduction as their top priority – something that hasn’t changed in almost a year. They said this would be their main response to rising national insurance costs for employers followed by increased productivity and then higher prices for customers.
A similar sentiment was reflected in consultancy firm BDO’s employment index, which hit a 12-year low in December amid falling job vacancies and payrolls.
The BDO said it expected employment targets to fall further as businesses adjust to rising national insurance costs and higher wage bills, although it said possible interest rate cuts could help ease that pressure.
The figures are the latest to show a negative response to the rise in employers’ national insurance contributions – the main revenue boost in Rachel Reeves’ October Budget.
Ian Stewart, chief economist at Deloitte, said: “With cost containment at the fore in the run-up to the Budget, chief financial officers have cut expectations for corporate investment, discretionary spending and employment over the next 12 months. But despite a fall in business confidence, we expect to see UK growth pick up over the summer due to easy fiscal policy and interest rate cuts, with GDP growth likely to outpace the outcome of 2024 and the performance of the euro area.
Finance chiefs expect interest rates to fall by 0.75 percentage points to 4% by the end of 2025, helping to lower borrowing costs for businesses and households.
The polls reflect comments from senior business leaders, including the bosses of Next, Marks & Spencer, Sainsbury’s and Tesco last week, who all suggested they would invest in automation and keep a tight rein on new hires among higher wage costs – especially for those in lower paid roles.
This month’s latest jobs report from consultancy KPMG and recruitment firm REC also showed many firms reluctant to hire.
The Bank of England said last month that the government’s policy decisions had created “additional uncertainty” about the economic outlook.
The turmoil in bond markets has also revived fears of rising borrowing costs, which could deter business investment.
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A separate report by Make UK and PwC found that manufacturers still believe the UK is a competitive place to make their goods, despite challenges posed by rising costs and the threat of a trade war raised by a second term. of Donald Trump as US president.
Almost six in 10 companies said they would increase investment in response to an industrial strategy, and Make UK urged the government to “set out in detail as soon as possible the full proposals for a formal long-term industrial strategy”.
“Manufacturers have demonstrated their resilience over and over in recent years and, despite the many challenges they face, those who remain innovative and are prepared to invest in new technologies, expanding markets and, most importantly, their people theirs will continue to thrive.” said Stephen Phipson, chief executive of Make UK.
“To help companies navigate these challenges, it is now vital that the government sets out as a matter of urgency the immediate and important priorities as part of its formal industrial strategy given the very clear benefits that manufacturers believe this will bring ,” he added.
