British services firms in February cut staff at the fastest pace since 2020 ahead of tax and minimum-wage hikes that come into effect next month, an industry survey showed on Wednesday.
The preliminary reading of the UK S&P Composite Purchasing Managers’ Index (PMI) for this month rose marginally to 51.0 in February from 50.8 in January. That was fractionally lower than an initial estimate of 51.1 and just above the 50 level that separates growth and contraction.
But there was a sharp drop in the survey’s employment gauge, which sank to 43.9 from 45.1, its lowest since November 2020 and since the 2007-08 global financial crash if the COVID-19 pandemic period is excluded.
“Less upbeat business expectations and another month of sharply rising input prices led to net job shedding across the service economy in February,” Tim Moore, economics director at S&P Global Market Intelligence, said.
“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.”
Input cost inflation slowed for the first time since last July with the subindex at 65.7, but that remained close to January’s nine-month high of 66.4.
Prices charged by firms also rose at a slightly slower pace than in January, when the services PMI’s measure of inflation hit a 13-month high.
But the pace of price growth remains a worry for the Bank of England – which is monitoring service prices closely as it gauges the strength of underlying inflation pressures and the appropriate pace of further interest rate cuts.
Business confidence fell to a more than two-year low, reflecting concerns among firms about the economy and the impact of a 25 billion pound ($32 billion) rise in employers’ social security contributions.
The PMI also showed concerns about the near-term economic outlook, and the impact of rising payroll costs contributed to a decline in business confidence about the coming 12 months to its lowest in more than two years.
Survey respondents also expected a decline in demand, reflecting lower discretionary spending by consumers and cutbacks to business investment plans.
The composite PMI – which combines the services data with Monday’s manufacturing survey – edged down to a two-month low of 50.5, in line with a Reuters poll forecast and an earlier estimate.
($1 = 0.7851 pounds)
(Reporting by Suban Abdulla)
