Services sector cuts jobs and hikes prices after Reeves’ tax raid
The UK’s services sector has turned to hiking prices and shedding workers in an effort to balance the books in the face of rising cost pressures from government policy.
Businesses activity picked up for the tenth-consecutive month in February, according to the latest Purchasing Manager’s Index (PMI) from S&P, but came amid a “solid” amount of job cuts across the services sector – which contributes to around 80 per cent of UK GDP.
The report said February data pointed to “another month of job losses, which continued the trend seen since October 2024,” when Rachel Reeves delivered her first Autumn Budget.
The Chancellor launched a £40bn cash grab in her maiden Budget, with around £25bn coming from a 1.2 per cent hike to employer’s national insurance contributions.
The tax raid took a major chunk out of firms’ bottom line, and came alongside hikes to the minimum wage, piling more cost pressures onto employers.
S&P said the rate of decline in staffing numbers had “moderated” slightly since January but still remained faster than that recorded in the second half of 2025. It marked the seventeenth successive month of a decrease in staffing numbers.
“Job losses reflected ongoing efforts to focus on boosting productivity and mitigate sharply rising input costs,” said Tim Moore, economics director at S&P Global Market Intelligence.
“Higher payroll costs were widely cited as leading to a strong pace of overall input cost inflation.”
Businesses raise prices to battle costs
The latest release from S&P comes a day after Reeves delivered her Spring Statement, where she insisted Labour had the “right economic plan” as growth forecasts were cut for 2026.
Moore said firms flagged rising costs across food prices – which have remained well-above the inflationary average – and technology.
Businesses have turned to investments in artificial intelligence (AI) as a way to automate, which has spiked further fears over the UK’s rising rate of unemployment.
Last week, data from founders club Helm showed a third of Britain’s scale-ups were expecting to cut jobs in the next year amid the acceleration of AI.
Moore said rising cost pressures had also contributed to “another robust increase in prices charged by service providers” with the pace of inflation little-changed from January’s five-month high.
But firms did remain optimistic for the year ahead, with 50 per cent of those surveyed predicting a rise in their own output levels, whilst only 13 per cent anticipated a reduction.
“Service providers typically commented on a growth mindset, supported by new product development, business diversification strategies and long-term investment plans,” the report said.