(Commonwealth_Europe) Service companies experienced a notable reduction in staff levels, marking the fastest pace of job cuts since 2020, according to a recent industry survey. The cuts come ahead of significant tax increases and a rise in the minimum wage, both of which are set to take effect next month.
The preliminary reading of the UK S&P Composite Purchasing Managers’ Index (PMI) for February showed a slight increase to 51.0, up from 50.8 in January. The reading was just under the initial estimate of 51.1, indicating that the index was marginally above the neutral 50-point level that separates expansion from contraction. However, while the overall PMI suggested a slight expansion, it was accompanied by concerning signs for the labor market. The survey’s employment indicator, in particular, fell precipitously, from 45.1 to 43.9. The decrease marked the lowest reading for employment in the services sector since November 2020. If we exclude the impact of the COVID-19 pandemic, this was the weakest reading since the global financial crisis of 2007-08.
Tim Moore, the economics director at S&P Global Market Intelligence, noted that the decline in employment was driven by more subdued business expectations and a continued rise in input costs, which led to net job shedding in the services sector. The survey indicated a clear loss of growth momentum since last autumn, with forward-looking indicators pointing to an increased risk of stagflation—where stagnant economic growth coincides with high inflation—looming shortly.
Input cost inflation showed signs of slowing, marking the first decline since July. The subindex for input cost inflation fell to 65.7, although the reading was still high, remaining close to January’s nine-month high of 66.4. This ongoing inflationary pressure has been a key concern for the Bank of England, particularly as it continues to monitor service prices closely. The central bank is using these price trends to assess underlying inflationary pressures and to determine the pace at which it may need to adjust interest rates further.
Firms’ pricing behavior also reflected the inflationary environment. While the pace of price rises slightly eased from January, when inflation hit a 13-month high, businesses were still charging more for their goods and services. This persistent inflation is a concern for the Bank of England as it gauges whether the economy is cooling in a controlled manner or if inflationary pressures remain entrenched.
Business confidence in the UK fell to its lowest point in more than two years, as companies expressed increasing worries about the economic outlook. These concerns were partly driven by an impending increase in employers’ social security contributions, expected to rise by 25 billion pounds ($32 billion). With rising payroll costs on the horizon, businesses became more cautious about their investment plans and anticipated a decline in demand. Respondents to the survey highlighted a decrease in discretionary consumer spending and reduced business investment as major factors contributing to the overall economic uncertainty.
The composite PMI, which combines the services sector data with the manufacturing survey from earlier in the week, edged down to a two-month low of 50.5. This was in line with expectations, based on a Reuters poll, and confirmed earlier forecasts of slower overall economic growth. The combination of stagnating growth in both services and manufacturing points to a challenging economic environment, with businesses adjusting to higher costs, reduced consumer spending, and a growing sense of uncertainty about the future.
