Job cuts reach crisis levels in UK due to rising costs

In February 2025, businesses across the UK have experienced a significant decline in employment, with job cuts reaching a level not seen since the global financial crisis when the months impacted by Covid-19 are excluded. This decline has been largely attributed to an upcoming increase in employer national insurance contributions announced by Chancellor Rachel Reeves, amounting to a £25 billion hike. Companies are facing mounting financial pressure due to rising payroll costs, which have been intensified by weak demand for their products and services. The flash purchasing managers’ index (PMI) reported a drop in employment figures, highlighting that layoffs were notably sharp due to higher payroll expenses and increasing pressures to raise wages. Business activity has continued to stagnate for the fourth consecutive month, characterized by a PMI reading of 50.5, signaling that activity is barely growing. A majority of organizations surveyed indicated that the challenges they are facing have forced them to reassess their workforce requirements. As businesses grapple with these challenges, one-third of companies reported that the reductions in staffing levels were directly related to the fiscal policy changes announced during the previous autumn Budget. The combination of rising costs resulting from national insurance increases and diminishing sales has placed many firms in a precarious position, leading to a cycle of job cuts that may further weaken consumer spending. Economists and industry experts have raised concerns that this situation, if left unaddressed, could lead to a stagflationary environment as inflation continues to rise alongside falling employment. The data indicates a troubling outlook for the UK economy as firms aim to manage increasing operational costs while trying to maintain profitability in a challenging market landscape, underscoring the urgent need for strategic interventions from policymakers.