UK service sector employment has declined for eight months. Employment levels in the UK service sector have been dropping for eight consecutive months, marking the longest decline since the 2008 financial crash, excluding the pandemic, according to S&P Global analysts. UK businesses are under significant strain to sustain profit margins following a surge in labour costs due to Chancellor Reeves’ tax increase on employers’ national insurance contributions (NICs) implemented in April.
New data indicates that these additional costs and decreased workloads have compelled companies to reduce staff at levels unseen since the post-2008 financial crisis period, apart from the pandemic when many workers were unable to work. Service providers reported to S&P Global that staff leaving in May were not replaced, resulting in a “sustained downturn” in headcounts across UK firms.
On a more positive note, data showed that the pace of job shedding was the slowest since November 2024, according to S&P Global’s latest services purchasing managers’ index (PMI). This key growth indicator for the UK economy revealed a slight expansion in output in May, with the composite output figure at 50.3, just above S&P Global’s neutral 50 benchmark. The latest PMI reading was the second-lowest since October 2023.
Business activity increased more than an earlier ‘flash’ reading suggested, while confidence among service providers reached its highest level in seven months. Demand for new work, both domestically and overseas, declined due to US tariff issues, researchers noted. Tim Moore, economics director at S&P Global, stated that the service sector “regained its poise” last month with fewer firms expressing concerns about trade tensions and unstable financial markets. He added that although the upturn in service sector activity was marginal, it was stronger than first estimated in May. Optimism reached its highest level since October 2024, reflecting planned business investments alongside hopes for a rebound in sales pipelines and improving domestic economic prospects.
Rob Wood, chief UK economist at Pantheon Macroeconomics, commented that the data suggests the UK economy might avoid the worst impacts of President Trump’s tariffs. He remarked that “UK growth has passed the worst as President Trump walking back his more ruinous tariffs cuts the panic that took hold in April.” Despite the latest steel tariff threats from Trump, which the UK received a brief reprieve from, policy uncertainty has decreased by 60 per cent from its mid-April peak. Wood noted that removing the exaggerated response of business sentiment to uncertainty, and accounting for volatility, shows that services business sentiment has remained steady since October at a level slightly below potential GDP growth.
