UK services sector loses momentum and firms cut staff, survey shows; Aldi reports record Christmas sales – business live

UK private sector loses momentum, services firms cut staff, PMI survey shows

Britain’s private sector barely expanded last month, according to surveys, recording the lowest business activity since October 2023, as firms in the dominant services laid off staff at the fastest rate since January 2021, when a Covid lockdown was in force.

The final reading for the composite PMI (which includes manufacturing and services), from S&P Global, shows that the main business activity index fell to 50.4 in December from 50.5 in November, the lowest since October 2023 and barely above the 50 mark that separates expansion from contraction. It is slightly below the flash estimate of 50.5.

The headline index for the services sector rose to 51.1 in December from 50.8 in November, but was below the flash estimate of 51.4. Input cost pressures accelerated to an eight-month high, the survey showed.

Tim Moore, economics Director at S&P Global Market Intelligence, said:

The service sector ended last year with only a marginal upturn in business activity and a near-stalling of incoming new work. Survey respondents suggested that falling business and consumer confidence, largely due to worries about domestic economic prospects in 2025, had led to a considerable loss of growth momentum. While most parts of the UK service economy noted weak demand and cutbacks to client budgets, there remained pockets of strong growth in areas such as technology services.

A post-Budget slump in business optimism persisted in December, with output growth expectations for the year ahead unchanged from November’s 23-month low. Concerns about the impact of rising payroll costs, alongside a general unease about the climate for business investment, were reported as the main factors weighing on prospects for growth in 2025.

Rising input price inflation added to the gloomy near-term outlook for service providers, with overall cost pressures reaching an eight-month high in December. Prices charged inflation meanwhile intensified at the end of last year and remained well in excess of pre-pandemic trends.

Faced with subdued demand and rises in employment costs, many services firms scaled back their staff hiring and delayed backfilling roles in December. Nearly one in four reported an overall decline in their payroll numbers. Excluding the pandemic, this represented the steepest pace of job shedding for more than 15 years.

Key events

FTSE 100 bosses make more money in 2025 by noon today than average worker in a year

This is a stark statistic: the chief executives of FTSE 100 companies will have made more money in 2025 by midday on Monday than their average worker does in a whole year, according to the latest measure of inequality between bosses and their employees.

Median pay for FTSE 100 chief executives is £4.22m, 113 times the median full-time worker’s pay of £37,430, according to the High Pay Centre, a campaign group. That means UK bosses will exceed their workers’ annual pay within 29 hours – or at about 11:30am on Monday, if they started work straight after the new year holiday.

Bosses will hit the milestone marginally quicker this year than last, when it was reached at 1pm on the third working day of the year.

Workers’ pay did improve somewhat faster over the year, according to figures disclosed by the companies. Pay for bosses rose by 2.5%, against 7% for workers. However, bosses’ pay is at record levels.

The annual study aims to highlight the huge disparity in pay for bosses and their staff, a gap that has grown bigger in recent decades, prompting calls for action from unions and some politicians.

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Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said:

The barrage of shocks to businesses in the form of budgetary tax increases, geopolitical tensions, and the election of tariff-supporting Mr. Trump continued to weigh on sentiment in December. After a downward revision from the Flash release, the composite PMI now sits at a 14-month low…

We think that the PMI should rise in 2025 as the budget delivers a boost to spending and growth. What’s more, we think that the fall in the employment balance—the most notable move in the PMI’s balances since the budget — is overdone.

The fourth-quarter BCC survey, for instance, published this morning points to a less severe deterioration in job growth. Accelerating inflation and slowing growth, caused by the chancellor’s payroll tax hikes leaves the monetary policy committee in a quandary. Rate setters highlighted the uncertainty over the outlook in the minutes of their last meeting and they will likely continue to be cautious until the hard data resolve precisely how much growth is slowing and inflation is rising. We expect the MPC to cut rates 25 basis points in February and then twice more this year, in August and November.

UK private sector loses momentum, services firms cut staff, PMI survey shows

Tim Moore, economics Director at S&P Global Market Intelligence, said:

The service sector ended last year with only a marginal upturn in business activity and a near-stalling of incoming new work. Survey respondents suggested that falling business and consumer confidence, largely due to worries about domestic economic prospects in 2025, had led to a considerable loss of growth momentum. While most parts of the UK service economy noted weak demand and cutbacks to client budgets, there remained pockets of strong growth in areas such as technology services.

A post-Budget slump in business optimism persisted in December, with output growth expectations for the year ahead unchanged from November’s 23-month low. Concerns about the impact of rising payroll costs, alongside a general unease about the climate for business investment, were reported as the main factors weighing on prospects for growth in 2025.

Rising input price inflation added to the gloomy near-term outlook for service providers, with overall cost pressures reaching an eight-month high in December. Prices charged inflation meanwhile intensified at the end of last year and remained well in excess of pre-pandemic trends.

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Aldi celebrates ‘best Christmas ever’ as sales top £1.6bn

Jasper Jolly

Aldi has reported its “best Christmas ever” after Britain’s fourth-biggest grocer said it made sales of more than £1.6bn in the four weeks to Christmas Eve, thanks in part to shoppers trading up to its premium range.

The supermarket chain said total sales for the crucial holiday period increased by 3.4% year-on-year, helped by a 12% increase in sales of its Specially Selected own-label products.

The German-owned retailer’s annual sales growth was slower than the 8% it recorded during Christmas in 2023, but it was still a consecutive record year for sales during the period.

A customer shops in Aldi, in London, in September 2024. Photograph: Mina Kim/Reuters

The last three months of the year are known of as the “golden quarter” in the retail industry as households go on a spending spree for presents and food. Aldi said that Monday 23 December 2024 was its busiest ever trading day, with 3 million customers visiting. Its previous busiest day was Friday 22 December the year before.

It came after its fellow German-owned rival, Lidl, also reported record Christmas sales of more than £1bn. Lidl sales rose by 7% for the period, albeit after it increased its floor space by 3%. The two German chains have changed British spending habits by emphasising lower prices over extensive choice.

Guy Gittins, chief executive of Foxtons, echoed her comments, and painted a positive outlook for the property sector.

He said the estate agency chain’s under-offer sales pipeline is at its highest since the EU referendum in 2016.

I reflect a very similar positive outlook on on the year ahead, particularly when you look at the sales and lettings markets still recovering from what happened with the Covid shock and the budget of 2022 the market, we know for sure the sales market will be considerably better in 2025 than it was in 2024.

Each time we see even, even a small interest rate reduction brings with it a wave of new buyers being able to come back into the market. So we start at the start of this year with great momentum. We’ve seen our under offer sales pipeline – that’s the number of sales that we’ve placed into solicitors hands – the value and the volume of that pipeline is actually at its highest rate since the EU referendum.

A Foxtons estate agent in London. Photograph: Henry Nicholls/Reuters

Hays Travel boss sees ‘general confidence in the sector’

But it’s not all doom and gloom.

The consultancy firm KPMG reckons the UK economy will grow by 1.7% this year, double the estimated rate for last year.

Dame Irene Hays, the owner and chair of Hays Travel, Britain’s largest independent travel agent, is also upbeat. She told BBC radio 4’s Today programme:

I don’t see less confidence in the sector. In fact, I know it’s early days in January, but we were up in 2024 by 18.4% and just looking at the early start we’ve had to January, we’re up by 22% so there’s general confidence in the sector.

There’s an acknowledgement that there are additional payments to be made in terms of national insurance and national living wage. But we’ve been around for 45 years now, and we have managed a business through lots of different administrations, and all we do is really understand the rules of the game and try and play it better than anybody else.

Irene Hays with her late husband John in 2019. Photograph: Martin Godwin/The Guardian

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The British Chambers of Commerce’s Shevaun Haviland was on BBC radio 4’s Today programme this morning, talking about the latest business survey, which showed that 55% of firms intend to put up their prices, as they face rising costs from higher national insurance charges and the national minimum wage, which both kick in in April.

Tax is now a record high concern. Only half [of businesses] are expecting to increase their turnover and when costs go up, of course, at your front end, there’s only so many things you can do, right? There’s only so much money in the bank. So are you going to think about putting up prices, which businesses don’t really want to do, or you’ve got to take that hit in your margin, which means you have less money to invest in the future. Or you’ve got to look at your recruitment and your staff costs. So it’s really, really tough.

She was asked whether business confidence would return in the longer term.

We’re quite a strong economy… We have incredible businesses. They are resilient, they are innovative, but what they need is the right support, and this is just more cost pressure. And the government does have some strategies coming down the track. So in June, we expect to see the industrial strategy, trade strategy, a new infrastructure plan that is good, but in the meantime, we need to see quicker progress.

UK mid-sized firms face supply chain pressures, rising costs – BDO

British medium-sized businesses are gearing up for a challenging start to 2025 amid supply chain pressures and rising costs, according to another business survey, from the accounting and advisory firm BDO.

More than a quarter (29%) of firms are grappling with significant supply chain challenges, with delayed deliveries and inventory shortages disrupting operations and affecting their ability to meet customer demand.

On top of this, firms worry about economic and geopolitical tensions, and the prospect of new tariffs on international trade from Donald Trump, who becomes US president on 20 January.

Rising operating costs are another major challenge, with 28% of companies regarding the growing financial burden as their top concern going into the new year. Almost a third, 32%, of mid-sized businesses say they need additional financial support – including bank loans or government grants – to help navigate the hurdles of 2025.

Even so, many of them are more confident that they were at the start of the decade.

Nearly half (49%) feel they are in a stronger position than before the Covid-19 pandemic began in March 2020. This is reflected in their investment intentions, with an average of £4.6m earmarked by mid-sized companies over the next two to five years.

As part of their investment plans, almost half (47%) of companies are looking to integrate AI into their supply chain operations to streamline processes, reduce errors and improve overall efficiency. Almost a quarter (23%) are planning to hire people in specific roles to support AI adoption.

Richard Austin, partner at BDO, said:

Mid-sized businesses have faced a tough decade so far but, despite ongoing supply chain challenges and elevated costs, they are entering 2025 in a stronger position and with strong intent to invest in future growth.

We need the government to throw its weight behind these ambitious, resilient mid-sized businesses. They are the engine room of the economy, employing more than eight million people across the UK. They need a more favourable operating environment, underpinned by policy and taxation, that enables better access to capital and encourages ongoing investment in new technologies.

Here is our full story on the fall in UK business confidence, as reported by the British Chambers of Commerce:

🗣️Director General @BCCShevaun: “The worrying reverberations of the Budget are clear to see in our survey data. Businesses confidence has slumped in a pressure cooker of rising costs and taxes.”

Read the details of our latest economic survey 👇https://t.co/iMAbe3gS6F

— BCC (@britishchambers) January 6, 2025

European shares rise; FTSE 100 falls amid broker downgrades

European stock markets have opened higher, with the exception of the FTSE 100 index in London, which is trading some 20 points lower, down 0.2% at 8,205.

Germany’s Dax and Italy’s FTSE MiB are about 0.3% ahead, while France’s CAC has gained nearly 0.7%.

Richard Hunter, head of markets at interactive investor, said:

Investors finally found their footing in the new year, with markets snapping a five-day losing streak as AI [artificial intelligence] resumed its mantle as a major driver.

Microsoft announced on Friday that it would be spending some $80bn on AI-enabled data centres this year, which spilled over into the wider mega tech sector. Nvidia shares added almost 5%, Super Micro Computer advanced by 11%, with some strength also in evidence in the likes of Amazon and Meta Platforms.

However, heightened valuations means that markets will be prone to disappointments this year. The benchmark S&P500 ended 2024 with a gain of 23%, having posted a rise of 24% the previous year. For the Nasdaq the strength has been even more pronounced, with a spike of 29% last year following on from a jump of 43% in 2023.

In the meantime, US markets are subject to another four-day trading week as markets will be closed on Thursday in honour of former president Jimmy Carter, who died at the end of December. On Friday, the first acid test of the year comes in the form of the release of the non-farm payrolls report, where the current consensus is that 150000 jobs will have been added in December, after posting a gain of 227000 in November.

Turning to Asia and the UK, he said:

Asian markets were lower overnight, failing to respond to comments from the Japanese government that it would act to secure economic growth through wage increases and investment. Equally, and despite a report indicating that China’s services economy grew at the fastest rate in several months, the overarching threat of increased tariffs from the new US administration continue to weigh. Sentiment was further dented after president Joe Biden blocked an attempted $15bn bid for US Steel Corp by Nippon Steel, further ratcheting up geopolitical tension.

Markets struggled to make any meaningful progress in the UK at the open, with Unilever and Rolls-Royce among the early fallers after broker downgrades, although for the latter the markdown made little difference to a share price which has risen by 89% over the last year. On the flipside, there was some strength in the shares of Barratt Redrow after a broker upgrade, where a 23% decline in the price in the last year has reflected disappointment across the sector as a whole that the anticipated recovery in housebuilders has failed to materialise.

Yuan falls to 16-month low; Chinese exchanges meet foreign investors

Introduction: Over half of UK firms planning price rises as confidence falls to two-year low, survey finds

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Confidence among British businesses has plummeted to the lowest levels since ex-prime minister Liz Truss’s mini-budget in September 2022 following the autumn budget’s large tax increases.

A survey of nearly 5,000 firms from the British Chambers of Commerce showed concerns over taxation were the highest since 2017, while confidence about sales over the next 12 months was the lowest since late 2022.

The BCC’s director general Shevaun Haviland said:

The worrying reverberations of the budget are clear to see in our survey data. Businesses confidence has slumped in a pressure cooker of rising costs and taxes.

The chancellor, Rachel Reeves, announced £40bn of tax rises on 30 October, with a big burden on businesses, who will have to pay higher social security charges from April, along with a higher national minimum wage.

While the Bank of England estimates that higher public spending will temporarily boost growth next year, the tax rises are also expected to push up inflation slightly.

The BCC said 55% of firms plan to raise prices, up from 39% the quarter before, while 24% intend to scale back investment, up from 18% previously.

Growth in the UK economy picked up in the first half of 2024 as it recovered from a shallow recession in late 2023, but flatlined in the third quarter. The Bank of England has forecast zero growth for the fourth quarter, and an expansion of 1.5% in 2025.

In China, services growth has risen to a seven-month peak, according to a closely-watched survey.

The Caixin purchasing managers’ index (PMI) rose to 52.2 in December from 51.5 in November, signalling the strongest growth in the service sector since May, as new orders accelerated, despite a fresh fall in exports. Confidence remained upbeat despite higher cost pressures.

However, authorities are struggling to prop up the yuan, which has fallen to a 16-year low amid concerns about the economy and US tariffs.

Chinese stocks slipped on Monday, with the benchmark CSI 300 index down by 0.16%, as the country’s two biggest stock exchanges said they met foreign investors over the weekend.

The Shanghai and Shenzhen stock exchanges both held weekend symposiums with foreign investors “to solicit opinions and suggestions on the recent A-share market situation,” referring to shares from companies in mainland China that trade on the two stock exchanges.

The Shenzhen Composite index fell by nearly 0.4% on Monday, while the SSE Composite (stocks that are traded at the Shanghai Stock Exchange) edged 0.14% lower.

The South Korean Kospi led gains in Asia, rising by 2.3%, despite political turmoil in the country. Police will consider arresting members of the presidential security service if they try to block investigators, in an attempt to execute an arrest warrant for impeached president Yoon Suk Yeol, according to the Yonhap news agency and Reuters.

The Agenda