Growth in UK services sector steady but firms keep cutting jobs

Growth in the UK’s services sector held steady last month but businesses continued to cut jobs in the face of cost pressures and increased technology spending, according to new survey findings.

Experts cautioned that the escalation of conflict in the Middle East could dampen sentiment in the month ahead.

The S&P Global UK services PMI survey, which is watched closely by economists, showed a reading of 53.9 in February, down slightly from the 54.0 recorded in January.

Any reading above 50.0 means the sector is growing while any reading below signals it is contracting.

February’s figure showed activity was relatively steady since January, which was the highest score since August last year.

The latest survey showed that businesses were getting new work coming in thanks to a release of pent-up demand at home, with business and consumer spending picking up pace.

On the other hand, new work from abroad was close to stalling, leading to weaker export orders for UK firms.

The services sector is the largest part of the UK economy and spans a range of industries including hospitality and leisure, transport, finance and real estate.

The PMI survey also pointed to staffing being reduced for the 17th month in a row, remaining the longest period of job shedding for 16 years.

Many firms have been doing this by implementing hiring freezes and not replacing employees when they leave, while others said that investment in new technology meant they were producing more without needing to hire extra staff.

Tim Moore, economics director for S&P Global Market Intelligence, said: “February data pointed to a solid reduction in employment numbers, despite a sustained recovery in business activity.

“Job losses reflected ongoing efforts to focus on boosting productivity and mitigate sharply rising input costs.”

The data tallies with recent official statistics about the UK jobs market, which showed unemployment rose to a near five-year high in the three months to December.

Meanwhile, experts pointed out that the latest survey findings do not take into account the impact of recently-escalating conflict in the Middle East, which has sent oil and gas prices soaring this week.

Rob Wood, chief UK economist for Pantheon Macroeconomics, said February’s figures “signal that GDP (gross domestic product) growth was picking up smartly in the new year, but war in the Middle East will no doubt hit sentiment in March”.

“Firms report that higher employment costs were the main factor contributing to rising input prices in February, with firms also passing on higher prices paid for food and technology hardware,” he said.

“This suggests that upstream cost pressures from war in the Middle East could feed through to headline inflation, rather than being absorbed in margins.”

Mr Wood said it was “early days to be making hard and fast judgements on the impact of events in the Middle East” but that he had pushed back expectations for an interest rate cut to April, from March previously.