The UK's crucial services sector continued to cut jobs in December, fresh survey data reveals, casting a shadow over recent signs of an economic rebound. The decline in staffing numbers persisted even as business activity picked up, highlighting the intense cost pressures facing firms.
PMI Signals Sluggish Growth Amid Job Cuts
According to the flash estimate from S&P Global, the composite Purchasing Managers' Index (PMI) for the UK rose slightly to 52.1 in December, up from November's reading. While any figure above 50 indicates expansion, analysts described the pace of growth as "sluggish." The services sector index itself reached 52.1, compared to 51.3 the previous month.
Despite this growth, the survey pointed to a worrying trend: job losses were widespread, with the services sector experiencing the most significant drop among the sectors tracked. Chris Williamson, chief business economist at S&P Global, noted that intense cost pressures were the primary driver behind the continued reduction in staffing levels as the year drew to a close.
Cost Pressures Dampen Hiring Prospects
The report presented a mixed picture for businesses. On one hand, new business orders saw their strongest increase in 14 months, boosting sales pipelines and reflecting a rise in client confidence. On the other, companies grappled with accelerating costs, driven by high wage growth, technology investments, and energy bills.
"Job losses are also again worryingly widespread," said Williamson. He added that it was unclear whether the December uptick in orders would convince companies to resume hiring, especially as rising staff costs remain a key concern. These higher costs have also led to a renewed upturn in selling price inflation for both goods and services.
Economic Outlook and Policy Implications
The data suggests the UK economy may avoid a decline in the final quarter of the year. Jake Finney, a senior economist at PwC, stated the PMI showed a "strong rebound in business activity" following the uncertainty surrounding the Autumn Budget. He argued recent weakness was driven more by this uncertainty than a structural collapse in underlying activity.
However, the sluggish growth and ongoing job cuts have implications for monetary policy. S&P Global's Williamson suggested the data supports the case for a further interest rate cut at the December meeting of the Bank of England's Monetary Policy Committee. He cautioned, however, that the path for rates in 2026 would remain heavily dependent on incoming data, particularly regarding the evolution of price pressures.
Finney from PwC concluded that the weakening jobs market makes it "unclear" whether hiring will recover in the new year, leaving a key question mark over the strength of the UK's economic recovery as it moves into 2026.
