Employment and Cost Pressures Intensify

Employment across the private sector declined sharply as companies reacted to weak demand and high payroll costs. Many firms indicated non-replacement of departing staff, driven by automation initiatives and a focus on boosting productivity. Input cost inflation rose for the fourth consecutive month, driven by higher wages and the impending increase in employers’ National Insurance contributions. Manufacturing companies also pointed to escalating raw material and energy costs, leading to the highest purchasing price inflation in 25 months.

Demand Weakness Weighs on Growth Prospects

The report signaled the fastest decline in new work since August 2023, with both domestic and international sales weakening. Export orders dropped at their quickest pace since August 2023, with reduced demand from the EU and the US. Many firms cited client budget cuts and restrained business investment, contributing to reduced backlogs of work for the 22nd month in a row.

Market Forecast: Bearish Sentiment Expected

Given the accelerating downturn in manufacturing, rising input costs, and the sharp drop in employment, the near-term outlook for the UK market appears bearish. While service sector growth offers a glimmer of hope, the broader economy is showing signs of stagflation. Traders should remain cautious, particularly regarding manufacturing and export-oriented stocks, as the likelihood of reduced business activity looms unless demand recovers swiftly.