In January, growth in the UK's service sector moderated, primarily due to a decline in new business for the first time since October 2023, as indicated by the latest data from S&P Global.
The finalized services Purchasing Managers' Index (PMI) recorded a reading of 50.8 in January, a slight decrease from December's 51.1 and below the preliminary estimate of 51.2. While these figures suggest continued expansion, it is notable that this month's score is tied for the lowest in the last 15 months and falls significantly under the pre-pandemic average. The final composite output index edged up to 50.6 from December's 50.4, though still below the flash estimate of 50.9.
January saw a slight reduction in total new work for services, breaking a 14-month streak of growth, with global economic uncertainties, high-interest rates, and waning business confidence cited as primary factors. Despite continued demand from US clients, export sales declined.
There was a notable decrease in backlogs, pointing to surplus capacity resulting from ongoing weak demand, with this drop in unfinished work being the steepest since August 2023.
For the fourth consecutive month, employment numbers in the service sector decreased, with the pace of job cuts reaching its highest since January 2021.
The strongest increase in cost inflation since April 2024 was partly due to rising wage expenses and suppliers passing on higher payroll costs. Consequently, service sector firms raised their prices to the greatest extent in 13 months.
Service providers' sentiment fell to its lowest point since December 2022, as they grapple with strained profit margins, lackluster customer demand, and bleak prospects for UK economic growth.
Tim Moore, Economics Director at S&P Global Market Intelligence, commented, "January data underscores a challenging business climate for UK service providers, as stagflation conditions appear to have gained a stronger foothold at the year's outset."
