The UK services sector last month shed jobs at the fastest rate in 15 years, excluding the pandemic, as companies took a cautious approach into the new year but overall remained marginally in expansionary mode due to some pockets of strength.
December’s services purchasing managers’ index produced a reading of 50.4, unchanged from the 23-month low recorded in November and slightly above with 50 mark that separates growth from contraction.
Many services sector companies reported concerned about cutbacks to business and consumer spending, alongside the impact of rising employers’ National Insurance contributions, the survey from S&P Global revealed.
Business activity was up slightly from November and signalling a marginal expansion, though subdued sales pipelines continued to hold back activity growth.
New orders showed the lowest reading since October 2023, close to stagnation but still pointing to a fractional increase in new work.
Firms cited falling confidence among clients in the wake of the Budget and lacklustre domestic and overseas economic conditions, though the technology services sub-sector showed strength.
Tim Moore, economics director at S&P Global Market Intelligence, said the post-Budget slump in business optimism persisted in December.
“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 nearterm 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 rising employment costs, many service sector companies slowed hiring, with nearly one in four reporting a decline in staff numbers.
Excluding the pandemic, Moore said this was the steepest pace of job shedding for more than 15 years.