Service sector sees longest run of job losses in 16 years
A new survey suggests that the UK service sector has endured its longest sustained period of job losses in 16 years, despite rising business activity at the start of the year.
Employment in the service sector has decreased in each month since October 2024, according to S&P’s purchasing managers’ index (PMI), with the pace of job losses accelerating in January compared to the previous month.
The survey pointed to “squeezed margins”, fragile confidence and continued automation in the sector as key reasons for the decline in employment.
Rob Wood, chief UK economist at Pantheon Macroeconomics, also pointed to the impact of the national insurance increase, which came into force last April.
“Employment remains in the doldrums as firms continue to cut costs to absorb last year’s payroll tax hike,” he said.
Tim Moore, economics director at S&P Global Market Intelligence, said the survey sent “gloomy signals” for the UK labour market, which is already under significant pressure.
Unemployment increased to 5.1 per cent in the final quarter of last year, its highest level for four years, with many forecasters predicting further job losses to come.
Encouraging start despite job losses
The job cuts came despite a number of bright spots for firms in the service sector, with overall business activity in January rising to its highest level since August 2025.
The PMI hit 54.0, up from 51.4 in December and comfortably above the 50 no-change mark, meaning activity in the service sector has expanded for nine consecutive months.
Higher levels of activity were linked to greater confidence among clients and an improvement in investor sentiment, often connected to greater certainty following the Budget.
“Part of the improvement appears to reflect a post-Budget lift in sentiment, with greater policy clarity following November’s fiscal event encouraging the release of some delayed projects and supporting investment spending,” Martin Beck, chief economist at WPI Strategy, said.
“To that extent, January’s PMI may overstate the underlying strength of activity, but it is nonetheless consistent with our above-consensus view of the economy’s prospects this year,” he added.
Service providers commented on a general upturn in clients’ willingness to spend at the turn of the year, even though consumer spending remains weak. Improved order books were attributed to increased digital marketing budgets and investments in new technologies.
Exporters were also boosted by a recovering global trade environment following the intense disruption caused by Donald Trump’s tariff announcements last year.
A number of firms reported greater sales to clients in Europe, especially Ireland. General economic uncertainty and intense competition in international markets were nonetheless reported by service sector exporters.
Looking forward, business confidence among service sector firms rose to its highest level since the government’s first budget in 2024, thanks to healthier sales pipelines and stronger investment spending among clients.
“The latest survey revealed an encouraging start to 2026 for the UK service sector, following a sluggish end to last year,” Moore said.