Service sector job cuts speed up as firms brace for tax rises

Service sector firms cut jobs at the fastest rate since 2020 last month as companies tussled with weak demand and growing costs ahead of tax and wage rises in April.

The S&P Global UK services PMI survey scored 51 in February, slightly up from 50.8 in January.

Any reading above 50 means a sector is in growth, while a score below this means it is shrinking.

The February score was slightly behind the 51.1 reading predicted by a consensus of economists.

Companies face growing costs when the minimum wage and employer taxes rise at the start of the new financial year in April.

Labour increased employer national insurance contributions (Nics) in the October Budget, designed to fund improvements to public services.

But about a quarter of services firms polled reported that they were shedding jobs in February, citing the rising payroll costs as well as subdued market conditions and geopolitical uncertainty.

Tim Moore, economics director at S&P Global Market Intelligence, said services sector firms had seen a “clear loss of growth momentum since last autumn”.

He said: “Worries about the near-term economic outlook and the impact of rising payroll costs contributed to another slide in business optimism.”

He added: “Less upbeat business expectations and another month of sharply rising input prices led to net job shedding across the service economy in February.

“Employment has now decreased for five months in a row. Aside from the pandemic, this represents the longest period of falling employment since early-2011.”

While about a third of survey respondents said their average costs were still rising, the rate of inflation eased slightly compared with January, amid reports of weaker pricing power.

Thomas Pugh, economist at the consultancy RSM, pointed to “weak economic growth in the UK’s major trading partners, such as France, Germany and China” for falling demand.

But he added that the threat of US tariffs and a global trade war “is probably more to blame for a sharp drop in sentiment”.

“Given recent developments this seems unlikely to change any time soon, meaning net-trade will continue to be a drag on growth.”

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