Service sector stumbles as demand falters, price pressures mount
By Abigail Townsend
Date: Wednesday 05 Feb 2025
(Sharecast News) - The UK's services sector faltered in January, a closely-watched survey showed on Wednesday, as costs mounted and nervous clients tightened belts.
The S&P Global UK services PMI business activity index for January came in at 50.8 last month. Although still in positive territory, it was down on December's 51.1 and the joint-lowest print for 15 months. It was also below expectations of 51.2.
A reading below the neutral 50.0 benchmark suggests contraction, while one above it indicates growth.
The survey of around 650 service sector firms also showed a decline in new work, the first since October 2023.
Respondents pointed to cost cutting and heightened risk aversion among corporate clients, as well as investment plans being delayed.
Input price pressures also started to intensify, however, largely due to higher payroll costs, while the pace of job shedding accelerated to its sharpest for four years.
Tim Moore, economics director at S&P Global Market Intelligence, said the data highlighted the "challenging" business environment for service provides, with "stagflation conditions" appearing to take a firmer hold.
He continued: "A renewed downturn in new business volumes added to signs that the near-term UK economic outlook remains tilted to the downside.
"Business activity expectations for the year ahead weakened in response to subdued demand in January, with optimism now at its lowest since December 2022."
Matt Swannell, chief economic adviser to the EY Item Club, said: "Having gained a little momentum in December, January's survey suggested that the sector faltered.
"In recent years, the S&P Global PMIs have been volatile and proved a relatively weak indicator of upcoming growth estimates; the survey has typically been influenced by business sentiment and has not necessarily reflected changes in private sector activity.
"Therefore...we expect the weakness in the official GDP estimates will be a brief soft patch, rather than the start of a sustained downturn in growth."
He added that the survey "highlighted the dilemma facing the Bank of England", which is due to meeting on Thursday to make its final decision on interest rates.
The EY Item club expects the Monetary Policy Committee to trim the cost of borrowing by 25 basis points tomorrow.
The panel was surveyed between 9 and 29 January.
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN