UK economy’s rebound fails to stem two years of mass job losses
A rebound in the UK economy over August has failed to turn around the country’s flagging labour market after nearly two years of job losses, new estimates have shown.
Data tracked by S&P Global suggested the UK’s private sector grew at the fastest pace in four months in August despite concerns around business costs and rising inflation.
A boost in the services sector has offset a slowdown in manufacturing over August, pushing growth to higher than July, according to a provisional estimate in the purchasing managers’ index (PMI).
But readings suggested that resilience in activity across the UK economy has contrasted with an extended streak of job losses.
Job losses have now taken place over 23 consecutive months, a record for the longest streak since PMI surveys began in 1996. The unemployment rate has risen from 4.4 per cent to 4.9 per cent since Labour took office in mid-2024.
Chris Williamson, chief business economist at S&P Global said the rate of job losses was “moderating” and firms felt “more upbeat than at any time since the war began”.
“The expansion is being helped by sunny weather and tech investment, though as expected we have seen some softening of growth in the manufacturing sector as precautionary stock building cools,” Williamson said.
“It’s clear, however, that the Middle East and concerns over domestic government policy continue to have a damaging effect.
“Most worryingly, cost pressures remain high, largely due to energy prices and supply disruption linked to the Middle East conflict alongside high staffing costs.”
Labour’s decision to hike the minimum wage and national insurance payments for employers at its first budget in 2024 have hammered companies and triggered a slowdown in hiring. According to a cost calculator from the British Chambers of Commerce, a typical small firm’s cost stack has risen some 70 per cent since 2016, with more than a quarter of that coming since the 2024 Budget.
Job losses not reversed despite UK economy’s gains
The overall PMI for the private sector was 52.5, above the 50 value for no change in activity. It also beat last month’s score of 52.2.
Manufacturers suffered slower growth as the sector’s reading dropped from 51.9 to 51.5.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the improvement in business sentiment suggests that the UK economy could run above the Bank of England’s expectations for growth in the third quarter.
“We estimate the average PMI over July and August is consistent with quarter-to-quarter GDP growth of 0.2 per cent in the third quarter, down from 0.4 per cent in the second quarter but still above the Monetary Policy Committee’s forecast for a rise of just 0.1 per cent,” Wood said.
“Granted, some of the ‘[Andy] Burnham boost’ could yet fade as Budget uncertainty ratchets up in the Autumn, while higher energy prices will continue to drag on demand.”