New work for firms in the all-important services declined for the first time in over a year, a closely watched survey showed, pointing to the bleak outlook for the UK economy.
The survey showed that incoming work for services firms decreased in January, ending a 14-month period of continuous growth.
Many firms responding to S&P’s purchasing managers’ index (PMI) said the weakness in demand was due to the Budget, which has contributed to souring business sentiment.
Global economic uncertainty had also contributed to the drop-off in new work, the survey said.
It showed that exports fell for the second month in a row, although US demand held up much better than “lacklustre” spending in Europe.
“A renewed downturn in new business volumes added to signs that the near-term UK economic outlook remains tilted to the downside,” Tim Moore, economics director at S&P Global Market Intelligence said.
The overall services PMI registered 50.8 in January, which was the joint lowest for 15 months. The reading was down from 51.1 in December and slightly below the earlier ‘flash’ estimate. Anything above 50 indicates growth.
The survey revealed further evidence of the impact of the Budget on businesses, with input prices rising at the fastest pace since April 2024. This was a result of higher salary payments while suppliers also attempted to pass on the higher payroll costs.
With costs rising, the rate of job shedding accelerated to its fastest pace since January 2021. Again, many respondents pointed to the impact of the national insurance hike.
“The twin perils of shrinking workloads and rising payroll costs meant that many service providers put the brakes on recruitment in January,” Moore said.
Services inflation also increased at the fastest pace in 13 months even though some firms cut prices in an attempt to “stimulate sales”.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the survey was consistent with services inflation accelerating back above five per cent.
“We expect the MPC to cut Bank Rate 25bp tomorrow but they will have to follow a middle ground between supporting growth and squashing inflation for the rest of the year,” he said.
Many forecasters have slashed their projections for the UK economy this year, citing the impact of the Budget on businesses.