UK economy: Business activity picks up, but hiring slows
The UK economy is exhibiting a somewhat contradictory picture, with business activity picking up while the pace of hiring slows dramatically, according to Mitrade and S&P Global.
Key findings
- Business activity is improving:Â The S&P Global UK Composite Purchasing Managers’ Index (PMI), a key measure of business activity, rose to 53 in August from 51.5 in July, marking the fourth consecutive month of expansion (readings above 50 indicate expansion). This was driven by strong demand in the services sector, with some improvement also reported in manufacturing.
- Hiring is slowing significantly:Â Employment measures fell for the eleventh consecutive month, and many companies are reporting reduced hiring and layoffs. The number of people on payrolls dropped by the most in five years last month.
- Factors contributing to the slowdown:Â Several factors are contributing to this hiring slowdown, including increased costs for businesses (from higher inflation, tax rises, and rising employer National Insurance Contributions (NICs)), economic uncertainty, and a focus on cost containment.
- Impact on different sectors:Â The slowdown in hiring is not uniform across all sectors. Retail, secretarial/clerical, hotel/catering, and blue-collar sectors are experiencing the sharpest declines in permanent vacancies. Conversely, construction and engineering are showing modest growth in permanent vacancies. The technology sector continues to see robust growth in demand for skills like software and web developers.
- Wage growth is moderating:Â Average weekly earnings, excluding bonuses, grew at a robust 5.6% in the three months to March 2025, but this growth rate is slowing. The rate of increase in starting salaries for permanent staff has also softened.Â
Economic outlook
While the pickup in business activity is a positive sign, the continued slowdown in hiring suggests businesses are still exercising caution amidst economic uncertainty and cost pressures. The Bank of England is closely monitoring the labor market for signs of easing inflationary pressures as it considers future interest rate decisions.
However, economists remain divided on the outlook. Some believe the jobs market slowdown will pave the way for further interest rate cuts, while others are concerned about persistent inflationary pressures and the potential for a prolonged period of slow growth. The government faces the challenge of navigating these complexities and supporting a sustainable economic recovery.
