The latest S&P Global Flash UK Purchasing Managers’ Index (PMI) shows that business confidence was unchanged in December, matching the 13-month low recorded in November. December’s PMI came in at 50.5 on an index where anything under 50 represents contraction. While the report found a marginal increase in business activity, manufacturing output fell and companies reported the sharpest decline in workforce numbers since January 2021, with this attributed to weaker demand, rising employment costs, and squeezed margins. Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise.” Suggesting that businesses “have responded negatively” to the new government’s “downbeat rhetoric and policies,” he warned that “the loss of confidence and increased culling of jobs hints at worse to come as we head into the new year.” Mr Williamson also said the “marked pull-back in hiring” is, in part, a response to the increase in National Insurance contributions. Matt Swannell, chief economic advisor to the EY Item Club, said the PMI “is a relatively poor leading indicator of GDP growth” as it is overly sensitive to sentiment, rather than tangible economic activity.

Conservative leader Kemi Badenoch has expressed support for flat taxes, where everyone plays the same rate, saying: “This is an idea that I’ve heard many times. It’s very attractive, but if we’re going to get to that sort of scenario, there’s a lot of work we need to do first-hand.” Speaking at an event organised to oppose Labour’s increases to inheritance tax on family farms and businesses, she added that implementing such a system would likely result in a tax rise for basic ratepayers while providing significant cuts for higher earners, should the change be fiscally neutral. Ms Badenoch told the Business Property Relief Summit that the Government’s plans would cost the Treasury money because they would “destroy the businesses that provide that income.” The Tory leader added that there is a need to “make sure we rewire our economy so that we can lighten the burden of tax and of regulation on individuals, and on those businesses that are just starting out in particular.”

Voters have largely accepted the £40bn tax increases in Chancellor Rachel Reeves’s first Budget as “necessary” for improving public services, despite 57% expecting to be worse off. A survey by the University of Bristol revealed that 48% of respondents supported the tax rises. The survey also highlighted significant political divides, with only 29% of Reform UK voters supporting the increases compared to 65% of Labour voters. While there is some support for specific measures like VAT on school fees, raising inheritance tax on farms was the least popular.

Labour’s proposed tax changes on inherited business properties, set to take effect in April 2026, could lead to significant job losses and reduced revenue for the Treasury. According to CBI Economics, the cuts to inheritance reliefs for family businesses may result in a loss of 125,000 jobs. Overall, the loss of economic activity will lead to a £2.6bn reduction in income from taxes such as corporation tax, income tax and National Insurance over the next five years.

Analysis from Knight Frank shows that three quarters of workers in London’s flexible offices have increased the number of days at their desk and attend the office at least four days a week. The report also shows that this has driven a surge in demand for flexible office space, with three quarters of operators and landlords seeing larger firms leasing more space compared to a year earlier. A number of firms haver urged staff to return to the office amid concerns that remote working has driven a drop in productivity. Research from the Centre for Cities shows that only a third of workers think they are more productive at home.

Deloitte analysis shows that the financial services sector has been hit by a mental health crisis, with 17% of employees experiencing burnout compared to the 12% average across all sectors.

A group of 50 economists and policy experts have warned the Chancellor that deregulating the City could threaten financial stability and hinder growth. Rachel Reeves, who has suggested that regulations imposed after the global financial crisis have “gone too far,” has urged the Financial Conduct Authority to support the growth and competitiveness of the sector. However, experts responding to a Treasury call for evidence argue that allowing the financial services sector to expand further risked “undermining the Government’s efforts to grow the economy.” Signatories to the statement, which was co-ordinated by the campaign group Positive Money, pointed to a “wealth of empirical evidence showing that, beyond a certain threshold, financial sector growth harms the wider economy.”

Partners at Grant Thornton UK have “unanimously voted in favour” of investment from private equity firm Cinven. Grant Thornton will retain its partnership structure in the deal that is expected to complete towards the end of Q1 2025, subject to regulatory approval. Malcolm Gomersall, chief executive of Grant Thornton UK, said the firm recognises “the opportunity that external investment can offer to help us further accelerate our growth, whilst retaining our partnership structure and ethos, and provide an outstanding experience for our people and clients.”

Bank of England (BoE) policymakers are expected to keep interest rates on hold amid higher inflation and uncertainty over the impact of the Budget. The Monetary Policy Committee is expected to keep rates at 4.75% when members meet this week, having made cuts in August and November. Analysts at AJ Bell said that while policymakers “may feel that a lot of hefty lifting has been done” as inflation sits close to the Bank’s 2% target, they “cannot rest easy.” Thomas Pugh, an economist at RSM, commented: “We expect four cuts in 2025, meaning rates will finish the year at around 3.75%, but the risks are weighted towards fewer rate cuts.” Forecasting that rates will be held, Sanjay Raja, chief UK economist at Deutsche Bank, said: “We expect the final BoE decision of the year to be a dull affair.”

With official figures due this week, experts expect inflation to have climbed further above the Bank of England’s 2% target. While consumer prices index inflation stood at 2.3% in October, economists say this is likely to have risen to around 2.6% in November. Pantheon Macroeconomics and S&P Global both expect inflation to rise to 2.6%. Deutsche Bank, however,  forecasts inflation of 2.48%. RSM economist Thomas Pugh said the firm expects a “steady climb” to 2.6%, “which will continue to around 3% early next year, due to the surge in energy prices, tax rises in the budget including National Insurance contributions, VAT and national minimum wage, and increased government spending.” The Bank of England’s Monetary Policy Report, released in November, predicts that inflation will hit 2.5% by the end of 2024.