UK firms slash jobs after budget, but US economy booms; Royal Mail takeover gets government clearance

UK firms cut staffing by most in almost four years

Newsflash: UK companies are cutting jobs at the fastest rate since early in the Covid-19 pandemic, a new survey of British purchasing managers shows.

S&P Global’s latest flash PMI report, just released, shows that staffing numbers are falling in December, for the third month in a row, as firms react to October’s tax-raising budget.

The rate of job shedding across the private sector economy was the fastest for almost four years, led by services companies.

Firms are choosing not to replace voluntary leavers due to rising employment costs, the report says, such as forthcoming increases in employers’ National Insurance contributions and the minimum wage.

The increase in employers’ NICs rates is also leading to cutbacks to working hours and longer-term efforts to restructure workforces, S&P Global says

The PMI report shows that there was marginal growth across the private sector this month; its Composite Output Index was unchanged at 50.5, just over the 50-point mark showing stagnation.

But while the services sector grew, there was another contraction in manufacturing.

Worryingly, business optimism fell to the lowest level since December 2022, largely due to an ongoing slide in service sector confidence.

Chris Williamson, chief business economist at S&P Global Market Intelligence says:

“Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise.

“Economic growth momentum has been lost since the robust expansion seen earlier in the year, as businesses and households have responded negatively to the new Labour government’s downbeat rhetoric and policies. Business confidence has sunk to a two-year low as companies weigh up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget. The survey’s price gauges are indicating that inflation is turning higher again.

“Firms are responding to the increase in National Insurance contributions and new regulations around staffing with a marked pull-back in hiring, causing employment to fall in December at the fastest rate since the global financial crisis in 2009 if the pandemic is excluded.

“While the December PMI is indicative of the economy more or less stalled in the fourth quarter, the loss of confidence and increased culling of jobs hints at worse to come as we head into the new year. Policymakers at the Bank of England may be cautious about cutting interest rates, however, given the resurgence of inflation being signalled, adding further to downturn risks in 2025.”

Key events

Closing post

Time to wrap up…

The sale of Royal Mail’s parent company to the Czech billionaire Daniel Křetínský has been approved by the UK government after a review under national security laws.

The £3.6bn takeover of International Distribution Services (IDS) – the owner of the 508-year-old Royal Mail – by Křetínský’s EP Group was confirmed on Monday morning.

It will be the first time Royal Mail has been controlled by an overseas owner in its history, which can be traced as far back as 1516 under Henry VIII.

The government will retain a “golden share” in IDS, which means any changes to Royal Mail’s ownership, tax residency or headquarters will need its assent. The Royal Mail brand will also be protected for as long as EP owns the company.

EP has also reached agreement with the Royal Mail’s unions, having offered guarantees on job security, and the corporate governance of the company.

Britain’s private-sector firms are cutting jobs at the fastest pace since the Covid-19 pandemic, as they reacts to the tax rises in October’s budget.

Footfall at UK shops has slowed in the last fortnight, suggesting a poor Christmas in on the cards for shops.

But the picture is brighter in the US, where private sector growth is running at a 33-month high.

Canada’s finance minister Chrystia Freeland has resigned, in an apparent policy clash with prime minister Justin Trudeau over how to response to Donald Trump.

Shares in French broadcaster Canal+ have dropped by 20% after making its market debut in London this morning.

US private sector growth fastest since Covid-19 reopening

America’s economy is ending the year much stronger than the UK, it seems.

Data firm S&P Global reports that US private sector output growth is running at a 33-month high in December, amid a service sector surge.

Its Flash US PMI composite output index has jumped to 56.6 this month, up from November’s 54.9, which shows the fastest expansion since the reopening of the economy from COVID lockdowns in 2021.

The latest poll of purchasing managers also found that expectations of output in the coming year have hit a two-and-a-half year high, reflecting growing optimism about business conditions under the incoming Trump administration.

Employment also edged higher, up for the first time in five months, as firms expanded workforce numbers amid the brighter outlook.

Encouragingly for US central bankers, firms also reported that inflationary pressures cooled again this month, with the average prices charged for goods and services rising at the slowest rate since June 2020.

But while the service sector appears to be booming, manufacturers are report falling output and higher prices.

Chris Williamson, chief business economist at S&P Global Market Intelligence, explains:

The service sector expansion is helping drive overall growth in the economy to its fastest for nearly three years, consistent with GDP rising at an annualized rate of just over 3% in December.

It’s a different picture in manufacturing, however, where output is falling sharply and at an increased rate, in part due to weak export demand.

Encouragingly, confidence in the 12-month outlook has lifted to a two-and-a-half year high, suggesting the robust economic upturn will persist into the new year and could also become more broad-based by sector. However, some of the high spirits seen after the election in the manufacturing sector have been checked over concerns surrounding tariffs and the potential impact on inflation resulting from the higher cost of imported materials. December saw raw material prices spike sharply higher amid supplier-led price rises and higher shipping costs,

The US stock market has opened slightly higher, as investors await the final interest rate decision of the year on Wednesday.

The S&P 500 index of US stocks has risen by 0.2%, while the narrower Dow Jones Industrial Average is down less than 4 points, or 0.0088%, at 43,824 in early trading.

Tech stocks are picking up, lifting the Nasdaq Composite by 0.4% or 78 points to 20,005 points.

Canada’s finance minister resigns after policy clash

There’s a shake-up in the Canadian government today, where finance minister Chrystia Freeland has resigned.

In a letter posted on X, Freeland reveals that prime minister Justin Trudeau had asked her to relinquish the post for another cabinet position.

Writing to Trudeau, she says the pair have been “at odds over the best path forward for Canada,” explaining:

“On Friday, you told me you no longer want me to serve as your Finance Minister and offered me another position in the Cabinet.

“Upon reflection, I have concluded that the only honest and viable path is for me to resign from the Cabinet.”

Freeland, a former Financial Times and Reuters journalist, goes on to argue that Canada must push back against “America First economic nationalism” being pushed by Donald Trump.

After a boom in November, conditions in the New York state private sector have cooled this month.

The Empire State Manufacturing Survey, released a few minute ago, shows that business activity held steady in New York State in December.

After rising sharply last month, the headline general business conditions index retreated thirty-one points to 0.2.

The New York Fed Empire State Manufacturing Survey’s General Business Conditions index snapped back to a flat reading at 0.2 in December, down from 31.2 in November and below expectations of a decline to 6.4.#manufacturing #PMI pic.twitter.com/iX1w9MGxe4

— MTS Insights (@MTSInsights) December 16, 2024

The NY Fed reports:

New orders and shipments increased modestly. Delivery times shortened somewhat, and supply availability was little changed. Inventories increased at a substantial clip. Labor market indicators pointed to small decline in employment and a slightly shorter average workweek. Both input and selling price increases moderated. Firms remained optimistic about the six-month outlook, though somewhat less so than in November.

PureTech publishes positive results from lung disease trial

Julia Kollewe

The UK biotech PureTech Health has published positive clinical trial results for its lung fibrosis drug, sending its FTSE 250-listed shares up by more than 6%.

Idiopathic pulmonary fibrosis (IPF) affects more than 230,000 patients in the US and Europe, and there have been no new therapies approved in the past decade. IPF has a median survival time of two to five years. More deadly than many cancers, IPF is a progressive disease where over time, scar tissue spreads throughout the lungs and makes the absorption of oxygen increasingly hard.

Over a six-month intermediate (phase 2) trial, patients on PureTech’s drug deupirfenidone experienced a decline in lung function that was similar to what is expected in healthy older adults over the same time frame, suggesting that deupirfenidone has the potential to stabilise the lung function decline that is the hallmark of IPF, the company said. It added that no other study has shown this at six months. The drug was generally well tolerated.

While there are other treatments, antifibrotics, that are effective, their use is limited by tolerability concerns that contribute to nearly three quarters of people with IPF in the US foregoing treatment.

Chief executive Bharatt Chowrira said that if PureTech could repeat the results in a phase 3 trial, it would “represent a step change in the treatment of IPF”.

PureTech has replaced hydrogen atoms in the pirfenidone (one of the approved therapies for IPF – made by Roche) structure with three heavy hydrogen atoms. This changes how the drug is broken down in the body, and makes it easier to tolerate, it explained.

The Boston-based firm is known for its spinoff companies, including Karuna Therapeutics, which was bought by US drugmaker Bristol Myers Squibb a year ago, and Vedanta Biosciences. Deupirfenidone is PureTech’s only internal drug programme.

PureTech was co-founded by the American entrepreneur Daphne Zohar in 2005 and floated on the London stock exchange in June 2015. It is also listed on the Nasdaq. Zohar left in April to lead Seaport Therapeutics, another PureTech spinoff company.

The UK’s Office for Budget Responsibility (OBR) has been commissioned for an Economic and Fiscal Forecast which will be published on 26 March 2025.

This is in line with the Budget Responsibility and National Audit Act 2011 which requires the OBR to produce two forecasts each financial year. This will be accompanied by a statement to Parliament from the Chancellor, the Treasury has announced.

They add:

The Chancellor remains committed to one major fiscal event a year to give families and businesses stability and certainty on upcoming tax and spending changes and, in turn, to support the government’s growth mission.

That suggests it will be more of a ‘spring statement’ than a full-blown budget (following the one at the end of October).

⚠️ UK TO PUBLISH LATEST OBR ECONOMIC AND FISCAL FORECASTS ON 26 MARCH – GOVT STATEMENT

**UK FINANCE MINISTER REMAINS COMMITTED TO ONE MAJOR FISCAL EVENT A YEAR

— PiQ (@PiQSuite) December 16, 2024

French broadcaster Canal+ is having a rather bruising start to life on the London stock markets.

Shares in Canal+ have fallen by over 20% since trading began. Having started trading at 290p at 8am, they’ve now fallen to 227p, a drop of 22%.

Today’s UK PMI report reinforces fears that growth risks are to the downside and inflation risks are to the upside as we head into 2025.

So warns Daniel Mahoney, UK economist at Handelsbanken, who says:

There now seems to be growing evidence that firms are responding to the increase in employer’s NI and other measures around employment with a reduction in hiring, and it is notable that this is something that we have been hearing anecdotally from a range of clients. Moreover, the PMI’s price pressure indicators appear to be indicating that inflation could be turning higher.

This backdrop leaves the [Bank of England’s] MPC with a difficult set of trade-offs, with the rate cutting cycle likely to continue at a very cautious pace. Our central view remains that rate cuts will only happen at a pace of just one 0.25pp reduction per quarter through 2025.

The drop in staffing levels at UK companies this month, and the fall in business optimism, suggest the Bank of England should cut interest rates at its meeting this week.

So argues Professor Costas Milas of the University of Liverpool, who tells us:

The latest surveys (you reported on today) suggest, or at least hint, that we are “sleepwalking” towards a recession. Whether this turns out to be true (or not), the BoE’s MPC has a unique opportunity to take action this week by cutting interest rates. Many worry that inflation will rise based on data to be released this week. Such a rise should only be temporary.

In new work of mine (co-authored with Dr Papapanagiotou) on the out-of-sample forecasting performance of UK inflation, we find that both Divisia M4 growth and global supply pressures forecast future inflation (up to four quarters ahead) better than almost every other variable you can think of. Divisia M4 growth is extremely weak (just above 0% and, indeed, at historical lows) whereas global supply pressures are also extremely weak.

A great chance for the MPC to surprise positively this week rather than waiting for February 2025 when, perhaps, it will have left it too late!

A cut on Thursday would indeed be a surprise, though. The money markets are indicating there’s an 84% chance of no change in UK interest rates this week.

UK retail footfall drops in blow to shops

UK retailers are facing the prospect of ‘bleak’ Christmas trading, after a drop in visits to the high street, retail parks and shopping centres in the last fortnight.

Footfall at retailers over the last two weeks has averaged -3.1% below the same weeks last year according to new data from Rendle Intelligence and Insights. That’s a blow, as Christmas trading in 2023 was not great either.

Diane Wehrle, CEO of Rendle Intelligence and Insights, explains:

The subsequent two weeks trading since Black Friday seems to have been lacklustre at best. Experience has shown that trading plateaus in the week or so following Black Friday, however, a week on week drop in footfall into stores of -9.1% followed by a rise of only +7.5% is exceptionally disappointing.

Particularly as it means that footfall over the last two weeks has averaged -3.1% below the same weeks last year, which was recognised as a pretty disastrous Christmas trading period. Moreover, footfall into stores last week dropped further behind 2023 than the week before (-3.3% last week vs -2.8%) the week before last.”.

A chart showing UK retail footfall Illustration: Rendle Intelligence and Insight

But… with Christmas falling on a Wednesday there is a full week and then two additional days left to capture consumer spend.

Wehrle says:

“We might yet see a Super Saturday on 21st December!”

Unite general secretary Sharon Graham is also backing the Royal Mail agreement…

“This agreement opens the door to a better future for Royal Mail and its workforce.

It is now vital that EP and the government continue to work closely with Unite CMA and the CWU to ensure that Royal Mail delivers positive outcomes for its staff and its customers.”

Today’s PMI report suggests the UK economy could contract by 0.3% in the final quarter of 2024, suggests Elias Hilmer, assistant economist at Capital Economics.

Hilmer adds:

That said, we doubt the economy will be quite as weak as that given the PMIs do not capture rises in government spending.

Daniel Křetínský says his EP Group is “very pleased” to have reached an agreement with the Business Secretary to allow its takeover of Royal Mail.

Křetínský promises to be a good custodian of the postal operator, saying:

We would like to thank the Business Secretary for the constructive negotiations that have resulted in unprecedented commitments and undertakings that demonstrate the high regard EP Group has for Royal Mail as an institution, the service it provides to millions of UK homes and businesses, and Royal Mail employees.

EP Group is a long term and committed investor with a mission to make Royal Mail a successful modern postal operator with high quality service and products for its customers. We look forward to delivering on this mission alongside our partners in government.

UK taking ‘golden share’ in Royal Mail to smooth takeover

Back to the Royal Mail takeover, where the government has just confirmed it has reaches agreement with Royal Mail’s prospective new owners, and approved EP Group’s takeover.

Business secretary, Jonathan Reynolds says it shows the government is working hand in hand with private sector to improve crucial public services.

Under the deal, the UK has negotiated a ‘Golden Share’ in Royal Mail. This should prevent the headquarters of Royal Mail, or its tax base, being moved abroad without UK government approval.

Reynolds said:

For too many years progress on securing a stable future at Royal Mail has stalled, but from day one we have been committed to providing a secure future for thousands of workers and customers.

Today’s agreement is yet another example of this Government’s commitment to working hand in hand with business to generate reform give respite to people right across the UK, as we are working towards ensuring a financially stable Royal Mail with protected links between communities other providers can’t reach.

I’d like to thank EP Group and Daniel Křetínský for their constructive approach to our discussions and their commitment to protecting this national icon. I look forward to working with them to fix the foundations and ensure Royal Mail continues to deliver for the communities and businesses who rely on it most.