Job cuts have continued to dog the UK economy, with businesses now reducing staffing levels for 19 consecutive months. Researchers warn that higher payroll costs and productivity gains have forced employers in the services sector to rethink hiring plans.
Services PMI Shows Resilience
Results from S&P Global's purchasing managers' index (PMI) suggest that lower staffing numbers across the UK's dominant services sector have been recorded each month since October 2024—the month of Chancellor Rachel Reeves' first Budget. This marks 18 months of job losses in the leading survey of around 650 service sector companies, used by economists to track UK economic trends. In a slightly more comforting sign for job seekers, the employment reading was at its strongest level since November 2025 and the second strongest since November 2024.
Business activity still increased in April, according to the latest PMI readings, despite the Iran war bringing renewed uncertainty to firms across the City and the rest of the country. The services PMI reading came in at 52.7, higher than March's print and above the 50-figure benchmark for neutrality in activity. The composite PMI, which incorporates manufacturing and construction sectors, increased from 50.3 in March to 52.5 in April. These figures were also higher than an initial estimate provided in a 'flash' release last month.
Economists Weigh In
Pantheon Macroeconomics chief UK economist Rob Wood said the latest data shows how the UK economy has been "holding up" in the face of warfare in the Middle East and political flip-flopping in Westminster. "Some of the output gains will be temporary, resulting from firms bringing forward orders ahead of future supply disruptions," Wood said. "Backlogs of work fell by the most in six months. We also need to be cautious about seasonal adjustment when Easter timing changes. But the April PMI is consistent with 0.2 per cent quarterly growth in the second quarter—nearly 0.3 per cent."
Inflation Rises Despite Job Cuts
The data also showed that business costs, measured by input price inflation, were at their highest level since November 2022. More than half of respondents reported an increase in costs over April, with fuel surcharges and wage pressures adding to the burden on businesses. The overall inflation measure was at its highest level since January 2023, suggesting that firms may yet pass on costs to consumers. In more positive news for services businesses, optimism about activity in the upcoming year edged up.
Bank of England Rate Hike Risks
But costs could yet ramp up, as economists said the latest data offers the Bank of England further justification for raising interest rates. "For the Bank of England, rising inflation indicators along with resilient output balances, if they are maintained over the next few months, makes future rate hikes more likely," said Thomas Pugh, chief economist at the accountancy firm RSM. "Obviously, everything depends on how energy prices move going forward, but we still think the ultimate impact of the crisis will be a rising unemployment rate and weaker economic growth, which means any tightening cycle will be short and shallow. But clearly the risk of rate hikes is rising."
