A survey released on Wednesday indicated that the UK services sector experienced steady growth in February, though persistent job cuts and price pressures remain significant concerns ahead of the Bank of England's upcoming interest rate decision. The S&P Global UK Services PMI registered 53.9 in February, slightly down from January's five-month high of 54.0 and matching the preliminary reading. A PMI reading above 50 indicates expansion, while a figure below 50 signals contraction.
The composite PMI, which combines services and manufacturing data released earlier in the week, held steady at 53.7 in February, equaling the highest level since August 2024. The data comes just one day after UK Finance Minister Rachel Reeves presented new economic and budget forecasts to Parliament, projecting a further rise in unemployment this year—a trend reflected in the PMI figures.
Tim Moore, Economics Director at S&P Global Market Intelligence, noted, "February's data shows that despite continued recovery in business activity, employment levels saw a clear reduction. Job cuts reflect companies' ongoing focus on boosting productivity and mitigating the pressure from sharp increases in input costs." He added, "Rising wage costs are widely seen as the primary driver of overall input cost inflation."
The composite PMI revealed that UK employment has now contracted for 17 consecutive months, marking the longest period of decline since 2010. Following a 6.7% increase last year, the UK's minimum wage is set to rise by another 4.1% in April, reaching £12.71 per hour.
Although input cost inflation for services firms eased in February to its slowest pace since November of last year, prices charged by businesses rose at the fastest rate since August. Market expectations are that the Bank of England will keep interest rates unchanged at 3.75% this month, with policymakers closely monitoring services sector inflation to gauge the timing of future rate cuts.
On Tuesday, investors significantly scaled back their bets on BoE rate cuts this year amid concerns that Middle East conflicts could further fuel inflation. The survey also indicated that while some businesses noted positive effects from lower borrowing costs on demand, overall optimism among services firms regarding the February business outlook cooled.