5th Feb 2025 09:54
(Alliance News) - UK service sector activity growth decelerated in January amid weaker business confidence in the wake of the UK government budget, under which many UK employers will pay higher national insurance contributions from April.
The S&P Global UK services purchasing managers' index fell to 50.8 in January from 51.1 in December. Getting closer to the neutral 50-points mark separating growth from contraction, it indicates the pace of growth slowed in January.
It was worse than the flash reading published on January 24, which had reported an expected improvement in January to 51.2.
"While some service providers commented on the impact of global economic uncertainty and elevated interest rates, many firms also linked lower new orders to weaker business confidence in the wake of the autumn budget. Where new business growth was recorded, survey respondents typically cited strong demand for technology services," S&P Global said.
The S&P Global UK PMI composite output index edged up to 50.6 in January from 50.4 in December. It underperformed against the flash reading of a stronger improvement to 50.9.
The pace of job shedding, excluding the Covid pandemic, was the steepest since the global financial crisis more than 15 years ago, S&P Global highlighted.
"Lower workforce numbers reflected subdued demand conditions and ongoing efforts to mitigate higher payroll costs. Overall input price inflation hit an 18-month high in January," S&P Global said.
Tim Moore, economics director at S&P Global Market Intelligence, said: "Business activity expectations for the year ahead weakened in response to subdued demand in January, with optimism now the lowest since December 2022. A range of growth headwinds at home and abroad were cited by survey respondents, including elevated interest rates, geopolitical uncertainty and a post-budget slide in domestic business confidence."
He added: "The twin perils of shrinking workloads and rising payroll costs meant that many service providers put the brakes on recruitment in January. As a result, total employment numbers across the service economy decreased to the greatest extent for four years. Job cuts were seen in most sub sectors, with leisure and hospitality businesses indicating a particularly sharp rate of decline."
On Monday, S&P Global had reported that UK manufacturing economy remained in decline in January, numbers on Monday showed, while post-budget worries hurt new business.
The S&P Global manufacturing purchasing managers' index rose to 48.3 in January, from 47.0 in December. Moving closer to the 50 point mark, the figure suggested the speed of decline abated. The figure was a hair above the 48.2 flash reading.
The services PMI draws upon a panel of 650 service sector companies in the UK. Survey responses were collected between January 9 and 29.
By Tom Budszus, Alliance News slot editor
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