Job shedding accelerates across UK service sector - PMI

(Sharecast News) - Job cutting across the UK service sector accelerated in February, a closely-watched survey showed on Wednesday, as firms reacted to subdued demand and rising costs. According to the latest S&P Global UK services PMI survey, the reduction in employment was the fastest since November 2020.

Respondents attributed the reduction in employment to weak demand, with a lack of new business to replace completed projects, and sharply increasing input costs.

Around one-third of respondents said they had seen their average cost burdens rise in February, largely through increased salary payments and suppliers passing on higher payroll costs.

Overall, the business activity index rose fractionally, to 51.0 from 50.8 in January. The reading has now remained above the neutral 50.0 threshold for sixteen consecutive months.

However, it is also well below the long-run series average of 54.3 and was marginally below consensus expectations of 51.1.

The UK composite PMI - a weighted average of the manufacturing output and services business activity indices - was 50.5, down from 50.6 and in line with expectations. A reading above 50.0 indicates growth, while one below it suggests contraction.

Tim Moore, economics director at S&P Global Market Intelligence, said: "UK service providers achieved another modest increase in overall business activity during February.

"However, there has been a clear loss of growth momentum since last autumn, and the survey's forward-looking indicators continue to suggest an elevated risk of stagflation on the horizon.

"Worries about the near-term economic outlook and the impact of rising payroll costs contributed to another slide in optimism.

"Employment has now decreased for five months in a row. Aside from the pandemic, this represents the longest period of falling employment since early 2011."

Matt Swannell, chief economic advisor to the EY Item Club, said the survey pointed to "meagre" growth at the start of 2025.

However, he continued: "The S&P Global composite PMI has been a poor predictor of official growth estimates in recent years, and this PMI appears too pessimistic regarding current performance.

"December's GDP pick-up and January's strong retail sales figures provide a promising launch pad, we expect GDP to pick up in the first quarter.

"Growth should be steady over the course of 2025, as tighter fiscal policy and the lagged impact of past interest rate rises are balance by lower levels of consumer caution."