UK Services Growth Surprises on the Upside

The S&P Global UK Services PMI rose to 54 in January from 51.4 in December, below preliminary estimates of 54.3 but still the highest since August 2025. New business grew at a solid pace and reached a 3-month high, supported by higher client spending, digital marketing budgets and investment in new technologies, while subdued household demand and weak construction activity weighed on some sectors. Export orders rose modestly, with firms citing stronger demand from Europe, particularly Ireland. Employment remained under pressure, with staffing levels falling for a fourth straight month and marking the longest period of job losses in 16 years, as firms focused on cost control and automation. Input costs rose sharply, driven mainly by higher payroll, technology and raw material costs, prompting the steepest increase in prices charged since August 2025. Business optimism improved to the highest since October 2024, although concerns about costs and long-term growth persisted.

The S&P Global Flash UK Services PMI picked up to 54.3 in January 2026 from 51.4 in December, above forecasts of 51.7, flash estimates showed. This marked the ninth straight month of expansion in the sector, with growth hitting a 21-month high. Survey respondents noted that post-Budget clarity spurred new projects and boosted client investment, even amid a weak UK outlook. Total new orders rose for the third time in four months, marking the fastest increase since last October, despite still below the long-term average. Moreover, exports reached their highest level in 18 months, driven by the first upturn in foreign orders for manufacturing in four years. However, employment declined at a faster pace, amid rising payroll costs and weak economic conditions. Higher cost burdens kept inflation at December’s seven-month high, prompting a robust and accelerated rise in output charges. Business expectations rose again in January, with year-ahead optimism at its highest since September 2024.

The S&P Global UK Services PMI was revised lower to 51.4 in December 2025 from a flash estimate of 52.1, though slightly above November's 51.3. This marked the eighth consecutive month of expansion in the sector but the pace of growth was only marginal and similar to November. Total new work rebounded in December, with growth modest and the pace of expansion well above the 2025 average. Survey respondents cited tentative signs of a recovery in client confidence after an extended period of pre-Budget gloom. Meanwhile, employment continued to fall for the fifteenth consecutive month, though the rate of decline moderated from November, amid reports of elevated pay pressures and squeezed margins. Turning to prices, inflationary pressures strengthened, with input prices rising at a seven-month high and output charge inflation rebounding from November’s recent low. Lastly, business activity expectations for the year ahead improved from November and was the second-highest since October 2024.