Investing.com — British business growth saw a slight uptick in early 2025, however, hiring and business optimism continued to shrink, according to a recent survey. This trend highlights the ongoing challenges faced by the Bank of England.
The initial “flash” reading of the UK S&P Composite Purchasing Managers’ Index (PMI) rose marginally to a three-month peak of 50.9 at the beginning of the year, up from 50.4 in December 2024.
The survey aligns with other indicators of modest growth and a weaker jobs market, following the payroll tax increases for businesses introduced by Finance Minister Rachel Reeves in her debut budget on October 30, 2024. Despite economists predicting a drop in the PMI to 50.0 in January, the index saw a slight rise.
S&P Global reported that many companies attributed the decrease in hiring to the rise in their social security contributions, a change announced by Reeves. The rate of job losses over the past two months, as reported by the PMI, was the highest since the 2009 global financial crisis, excluding the COVID-19 pandemic period.
Company optimism dipped to its lowest point since late 2022, following the former Prime Minister Liz Truss’s “mini-budget” that shocked financial markets. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated, “The first indicators of business conditions in 2025 add to the gloom about the UK economy.”
Inflation pressures have reignited, indicating a stagflationary environment that presents a growing policy dilemma for the Bank of England. The PMI’s measures of business costs and selling prices climbed to their highest points since mid-2023, a factor that will likely be considered in the BoE’s discussions ahead of its interest rate decision on February 6, 2025.
Investors anticipate between two and three quarter-point rate cuts by the BoE in 2025 due to persistent inflation pressures, with the first expected in February. Official data showed that the UK’s economy stagnated in the three months leading up to September 2024, and the BoE estimated it remained flat in the last quarter of 2024.
S&P Global also noted that its UK services PMI rose to a three-month high of 51.2, up slightly from 51.1 in December. Despite this, manufacturing contracted for a fourth consecutive month and factory employers cut jobs at the fastest rate since February 2024. Nevertheless, the sector’s PMI improved to 48.2 from 47.0.
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