LONDON (Reuters) – British services firms lost momentum last month as a looming rise in employer taxes led to the fastest job cuts in four years but price pressures remained strong, according to a survey that underscored the challenge facing the Bank of England this week.
The S&P Global UK Services Purchasing Managers Index fell to 50.8 in January, the joint-weakest since November 2023, down from December’s 51.1 and only slightly above the 50 dividing line between growth and contraction.
It was also lower than a preliminary flash reading of 51.2.
“January data highlighted a challenging business environment for UK service providers as stagflation conditions appeared to take a firmer hold at the start of the year,” Tim Moore, economics director at S&P Global Market Intelligence, said.
“Businesses widely noted sharply rising salary payments and many also felt the impact of suppliers passing on forthcoming increases in employers’ national insurance contributions,” he said, referring to a key part of finance minister Rachel Reeves’ first budget statement announced in October.
Employment shrank for the fourth month in a row with the pace of job reduction its fastest since January 2021.
Input cost inflation increased for the fifth consecutive month to its highest level since April 2024, largely due to higher wage costs. Prices charged by firms rose at a faster pace too, potentially a worry for the BoE.
The central bank is expected to cut interest rates by a quarter point to 4.5% on Thursday but it remains wary about service sector inflation which it views as a key measure of underlying price pressures.
Moore said Britain’s near-term economic outlook was tilted to the downside.
Official figures showed Britain’s economy barely grew in November, and the BoE anticipates growth to have flat-lined in the final three months of 2024 after no growth in the third quarter.
The survey showed business optimism was the lowest since December 2022, reflecting heightened fears about demand.
New orders fell for the first time in 14 months, with firms noting weaker business confidence after Reeves’ budget, high interest rates and uncertainty about the global economy.
The composite PMI – which combines the services data with Monday’s upwardly revised manufacturing survey – stood at 50.6, below the preliminary reading of 50.9.
(Reporting by Suban Abdulla; Editing by Christina Fincher)
