Last Friday, the Office for National Statistics (ONS) reported that the UK economy shrank by 0.1% in October, marking its second consecutive contraction. This decline occurred even before Chancellor Rachel Reeves introduced her £40bn tax-raising Budget on October 30, which increased employers' national insurance contributions (NICs) by £25bn. Under the new rules, businesses will begin paying NICs on employees’ earnings from £5,000 instead of £9,100.
Many businesses have warned this measure could hurt hiring and lead to higher prices. Reeves, who has promised to create a "pro-growth" Treasury, defended her policies stating that the previous conservative government had left her "with the worst inheritance since the Second World War".
This raised an interesting question by Isaac Stell, investment manager at Wealth Club, “With businesses cutting back on hiring and investment to offset rising costs, where will growth come from?”.
Meanwhile, inflation rose to 2.6% in November, up from 2.3% in October, driven by higher motor fuel and clothing prices, according to ONS figures.
Wages also grew, with average weekly earnings (excluding bonuses) rising 5.2% in the three months to October, up from 4.9%. However, some economists predict wage growth will slow next year as businesses grapple with rising costs.
In light of this, the Bank of England (BoE) held interest rates steady at 4.75%, citing concerns over persistent inflation risks due to rising wages and prices. With inflation climbing, growth stagnating, and employer confidence declining, Chancellor Reeves faces mounting uncertainty as she heads into 2025 with her fiscal strategy under scrutiny.
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