Private Sector Shows Strong Growth as Hospitality Reels from Policy Impact
The UK's private sector has demonstrated remarkable resilience, expanding at its fastest pace in nearly two years during January 2026. However, this positive economic news is overshadowed by significant challenges facing the hospitality industry, which continues to struggle under the weight of recent government policy decisions.
Services Sector Drives Economic Momentum
According to the latest Flash Purchasing Managers Index (PMI) from S&P Global, the crucial services sector – representing over 80 percent of the UK's economic output – experienced a substantial uptick in activity. The January figures revealed a "sustained improvement" in new order intakes across the private sector, pushing business optimism to its highest level since before the Autumn Budget of 2024.
Chris Williamson, chief business economist at S&P Global, commented: "UK business kicked up a gear in January, showing encouraging resilience in the face of recent geopolitical tensions." The PMI reading climbed to 53.9 from 51.4, maintaining a steady position above the critical 50.0 threshold that indicates sector growth.
Williamson noted that this expansion was supported by multiple factors including:
- A recovering manufacturing sector
- Strong performances in financial services
- Robust activity in technology industries
Persistent Cost Pressures and Job Losses
Despite the overall optimism, the economic landscape remains complex. S&P Global reported that rising cost pressures triggered the most significant increase in average prices charged by private sector companies since August 2025. Williamson explained that while order books showed improvement, this failed to counteract the ongoing cost crunch, leading to what he described as a "steep loss of jobs" as businesses strive to balance their finances.
"These cost pressures were again often linked to government policies relating to higher national insurance contributions and the national minimum wage," Williamson stated. "This led to an especially steep drop in hospitality jobs."
Hospitality Sector Faces Policy Headwinds
The Labour government has faced mounting pressure to increase support for the hospitality industry following what many consider a major misstep in business rates reform. Earlier this week, ministers performed a policy U-turn, announcing that only pubs would benefit from tax relief measures – a decision that has left other hospitality businesses feeling abandoned.
Chancellor Rachel Reeves addressed the situation at the World Economic Forum, stating: "The situation the pubs face is different from other parts of the hospitality sector but we will be setting out the detail in the next few days."
Public opinion appears to support broader assistance for the struggling sector. According to the latest City AM/Freshwater Strategy poll, 70 percent of British voters believe that hotels, restaurants, and other hospitality businesses should be included in any support measures being prepared for pubs.
The contrasting fortunes of the broader private sector and the specifically challenged hospitality industry highlight the uneven impact of current economic policies. While some sectors thrive, others face difficult adjustments to new regulatory and fiscal environments.
