Reeves’ taxes hammer private sector as one of ‘lowest ever’ PMIs recorded
Private sector output fell in April for the first time in a year and a half as firms reported “more of a struggle” to survive after Chancellor Rachel Reeves’ tax rises kicked in, S&P Global’s flagship survey has suggested.
Businesses had been preparing for Reeves’ £20bn hike to employers’ national insurance contributions (NICs) for the best part of six months.
But S&P Global’s composite purchasing managers’ index (PMI) has suggested that UK firms have still been badly hit by tax rises which came into effect in April, as the UK economic outlook was “one of the lowest levels yet recorded by the survey”.
The flash PMI index suggested output had contracted as it fell to 48.2, below the S&P Global’s 50-figure benchmark. This drop is consistent with a quarterly decline of 0.3 per cent in GDP.
The service sector hit a 27-month low while manufacturing continued to tumble, according to the survey of some 1,300 firms.
Firms also reported that mass job culls across the UK economy have continued as profits were squeezed by NICs and a rise in the national living wage. The spike in cost was the fastest recorded since February 2023.
Tariff trouble
S&P Global also said that total new work received by UK private sector firms decreased for the fifth month in a row as Trump’s tariffs has forced firms to delay spending decisions.
Total work from abroad dropped at its fastest pace for nearly five years while the decline in new orders from abroad across manufacturing was the steepest since the aftermath of the financial crash around 16 years ago.
S&P Global chief economist Chris Williamson suggested that UK companies were “treading water” amid higher cost pressures.
“Businesses are reporting more of a struggle to keep their heads above water in April,” he said.
“Job cutting remains aggressive as business optimism about the year ahead sank to a two-and-a-half-year low, and one of the lowest levels yet recorded by the survey, even surpassing the low seen in the immediate aftermath of the Brexit vote in 2016.”
Williamson also said Reeves’ taxes have contributed to a deterioration in the UK’s economic outlook.
“The biggest concern lies in a slump in exports amid weakened global demand and rising global trade worries, but higher staffing costs have also piled pressure on companies – linked to the national insurance and minimum wage changes that came into effect at the start of the month.”
Capital Economics’ Alex Kerr said the new data suggested Trump’s tariffs will be a “bigger drag on the UK economy” than previously expected.