Employment falls in private sector for first time in two years, report finds

The number of people employed by private companies in the UK is falling for the first time in close to two years, as the country is widely thought to be in recession.

A new survey found that there has been a reduction in headcounts so far this month, the first time since February 2021 that employment has dropped.

Companies reported that they were not replacing staff when they left voluntarily because they were worried about the economic outlook, were getting fewer orders and were trying to cut costs.

“It’s no surprise to see that businesses are battening down the hatches, most notably by reducing headcounts, in a sign that the downturn not only has further to run but could yet accelerate again, especially given December’s further hike to interest rates,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

The manufacturing sector drove the drop in workforce numbers, while in the service sector employment stagnated after 21 months of consecutive growth.

It comes despite a better-than-expected reading in the monthly S&P Global/CIPS flash PMI figures.

The private sector was expected to score 48 in the December flash readings – which are preliminary. However the reading released on Friday morning showed a 49-point reading, up from 48.2.

But the slight easing of the downturn – anything below 50 is considered to show a contraction in the economy – is probably not enough to avoid a recession, Mr Williamson said.

“The December data adds to the likelihood that the UK is in recession, with the PMI indicating a 0.3% GDP contraction in the fourth quarter after the 0.2% decline seen in the three months to September,” he said.

Dr John Glen, CIPS chief economist, said: “Customers were tightening their belts all round in December as new order levels continued to fall in manufacturing and services industries, and for the first time since February 2021 the UK’s stricken economy affected job creation, especially across the UK’s manufacturing sector.

“The manufacturing sector suffered another sharp drop in output that was the fastest since August as weak demand and damaged supply chains affected the delivery of raw materials and items such as electronic components.

“Without a strong economic wind behind them manufacturers started to doubt the need for their current headcounts and shed jobs at a quicker pace.

“Service sector activity evened out after their patchy performance over the last couple of months and performed better in December but were still blighted by high costs.”