The UK’s services sector rebounded at the start of the year as “post-budget clarity” helped bring business activity to a five-month high, despite the industry facing the longest period of job cutting in 16 years, new figures show.
The S&P Global UK services PMI survey, watched closely by economists, scored a reading of 54.0 in January, up from 51.4 in December.
Any reading above 50.0 means the sector is growing, while any reading below signals it is contracting.
January’s score represents the fastest period of expansion since August last year.
Respondents to the survey said that higher levels of business activity were linked to greater confidence among their customers, new projects starting, and a greater willingness to spend and invest since the autumn budget in November.
However, many firms still reported that uncertainty around geopolitics and fragile consumer demand had weighed on growth in January.
The PMI survey incorporates the responses of hundreds of companies across the UK’s services sector, which includes hospitality, entertainment and culture, finance and insurance, and real estate and business services.
Tim Moore, economics director at S&P Global Market Intelligence, said: “The latest survey revealed an encouraging start to 2026 for the UK service sector, following a sluggish end to last year.
“A number of firms suggested that post-budget clarity had contributed to a broader improvement in client confidence, while some also cited rising export sales.
“Despite a recovery in total new work, service providers still reported that consumer demand was constrained by squeezed disposable incomes, while risk aversion in response to geopolitical tensions was a factor holding back business spending.”
Meanwhile, the PMI survey revealed that employment numbers within the sector have been decreasing since October 2024 – the longest period of job shedding for 16 years, and at a faster rate than in December.
Cost cutting and increased use of automation were cited as reasons for firms reducing the size of their workforce.
Separate figures from think tank the National Institute of Economic and Social Research (Niesr) on Wednesday showed that lower-paid industries such as hotels, hospitality and food chains were most exposed to rising labour costs, prompting businesses to slow the rate that they hire staff.
Thomas Pugh, chief economist at RSM UK, said the latest figures signal a “decent post-budget bounce in activity is occurring as budget uncertainty dissipates”.
“Signs of a rebound in growth in the first quarter, a now familiar pattern in the UK economy, are another reason to suspect that the MPC (Monetary Policy Committee) will wait until April before cutting interest rates again.
“Ultimately, growth this year largely depends on consumers’ willingness to get out and spend.”
The Bank of England is widely expected to keep interest rates unchanged at 3.75% when it announces its next decision on Thursday.
