Is the Labour Party's plan to revive the UK economy going down the drain? A survey by the Bank of England shows that businesses will raise prices and cut jobs after tax hikes.

A survey report released by the Bank of England on Thursday, on more than 2,000 British businesses, showed that British companies are expecting to raise prices of goods and significantly reduce the number of employees in response to the tax hikes initiated by the British government and the increase in employer social security contributions to take effect in April. The survey showed that due to the increase in taxes, companies are planning to raise prices, lay off workers, and since the announcement of the budget, business confidence, recruitment activities, and investment plans in the UK have all declined, which means that the new Labour-led government faces a severe test in its plans to revive the British economy. The report from the Bank of England's decision-making group showed that due to the increase in National Insurance contributions proposed in the new fiscal budget on October 30, 61% of companies expect profits to decline, 54% plan to raise prices, 53% expect a significant reduction in employment, and 39% plan to reduce wage increases. Since Chancellor of the Exchequer Rachel Reeves announced an increase of 25 billion (approximately $31 billion) in wage taxes, other surveys also show a significant decline in business confidence, recruitment, and investment intentions in domestic businesses in the UK. The slowdown in the British economy and persistent high inflation have exacerbated concerns in the financial markets about the level of UK public debt, leading to a sharp rise in the yield of UK 10-year government bonds this week, pushing up long-term borrowing costs significantly. Investors in the financial markets are increasingly worried about the strength of the UK economy and the radical fiscal plans of Chancellor Rachel Reeves under continued high inflation, as concerns about whether the size of UK public debt can continue to support the UK economy grow. The UK has been one of the hardest-hit countries in the global sovereign bond market sell-off this week, with the UK government bond prices even falling more than US government bonds. The sudden rise in the yield of UK long-term government bonds may deplete the slim budget space of 9.9 billion (approximately $12 billion) left by Reeves after announcing her first budget as UK Chancellor in October. Reeves's new budget plan has hit UK retailers particularly hard, as they face significant pressure from rising employee wages under ongoing inflation and tax hikes in the fiscal budget. Tesco, one of the UK's largest private sector employers and retailers, stated that its wage expenses will increase by 250 million this year, while Marks & Spencer warned that its wage expenses will increase by 120 million. In early trading in London on Thursday, the share prices of the UK's largest supermarket group Tesco Plc fell by 4%, while Marks & Spencer's share price dropped by 8.4%. Both retail giants had emphasized the serious economic challenges facing the UK and the significant increase in operating costs due to the tax reforms of the Labour government in power. B&M European Value Retail saw its share price drop by as much as 12%, after the company lowered its performance expectations, highlighting a decline in consumer confidence and a significant increase in costs due to Labour's tax policies. B&M's share price hit its lowest level since May 2022 on Thursday, with the company's stock falling by 45% over the past year, resulting in its downgrade from the FTSE index. On Thursday, another set of separate data released by a recruitment agency association showed the largest drop in demand for new employees by UK businesses since August 2020. The Bank of England is considering when to cut interest rates again and is monitoring whether higher labor costs will affect the inflation rate through price increases, layoffs, reduced investment, and slowing wage growth, thereby slowing down economic growth in the UK. Rob Wood, Chief UK Economist at PantheonMacroeconomics, said that the Bank of England's survey data shows that the impact of tax increases on prices is greater compared to other surveys such as REC or the S&P Purchasing Managers' Index, with a very small impact on economic growth. "The underlying DMP (survey) questions continue to show that UK inflation and wage growth are still ongoing, while the weakness of the labor market is lower than the qualitative survey would suggest. This should lead the Monetary Policy Committee to continue 'gradually' lowering interest rates," he said. Overall consumer price inflation in the UK climbed to 2.6% in November, the highest level in eight months. The Bank of England expects overall inflation to continue rising until 2025 and not return to its 2% target level before 2027, which will limit its willingness to cut rates from the current 4.75%. A survey conducted by the Bank of England between December 6-20 showed that the majority of UK companies plan to raise prices by 3.8% in the next 12 months, 0.1 percentage points higher than the three-month expectation of inflation ending in November. This December statistics survey also showed that the expected annual wage growth rate based on a three-month moving average remained steady at 4.0%.