- Service sector jobs have fallen every month since October 2024.
- Unemployment has climbed to 5.1 per cent, a four-year high.
- Business activity is rising, but firms remain cautious on hiring.
The UK service sector appears to be stuck in its longest stretch of job losses in 16 years, even as business activity picks up at the start of the year.
Figures from S&P’s purchasing managers’ index show employment in the sector has fallen each month since October 2024. The pace of job cuts quickened in January compared with December, suggesting employers are still trimming payrolls despite signs of recovery elsewhere.
The survey points to squeezed margins, fragile confidence and the continued shift towards automation as key reasons firms are holding back on staff.
Rob Wood, chief UK economist at Pantheon Macroeconomics, reportedly said in a news report that employment “remains in the doldrums” as companies try to offset last year’s national insurance increase, which came into force in April. Firms, he suggested, are cutting costs to absorb the higher payroll tax burden.
Tim Moore, economics director at S&P Global Market Intelligence, reportedly said the findings send “gloomy signals” for the wider labour market, which is already under strain.
Unemployment rose to 5.1 per cent in the final quarter of last year, the highest level in four years. Several forecasters expect further job losses in the months ahead.
Activity up, but hiring down
The slowdown in hiring comes against a more upbeat backdrop for business activity. In January, overall activity in the service sector reached its highest level since August 2025. The PMI rose to 54.0 from 51.4 in December, comfortably above the 50 mark that separates expansion from contraction. Activity has now grown for nine consecutive months.
Higher output has been linked to stronger client confidence and improved investor sentiment. Some of that optimism appears to stem from greater clarity following the government’s Budget. Service providers reported that clients were more willing to spend at the turn of the year, although consumer demand remains relatively soft.
Improved order books were often tied to rising digital marketing budgets and fresh investment in technology. Exporters also saw some relief as global trade conditions stabilised after the disruption caused by Donald Trump’s tariff announcements last year. Several firms noted stronger sales to European clients, particularly in Ireland.
That said, exporters continued to flag economic uncertainty and intense international competition as ongoing concerns.
Looking ahead, business confidence among service firms has picked up to its strongest level since the government’s first Budget in 2024. Healthier sales pipelines and increased investment spending among clients appear to be driving that improvement.
Even so, the gap between rising activity and falling employment raises questions about how durable the recovery might be. For now, firms seem focused on protecting margins and managing costs, rather than taking on new staff.
