UK service sector continues to expand for the tenth consecutive month in February

Investing.com - According to data released by S&P Global on Wednesday, the UK services sector has experienced growth for the tenth consecutive month in February, despite a slowdown in new order growth and ongoing layoffs.

The S&P Global UK Services PMI Business Activity Index for February registered at 53.9, slightly down from the five-month high of 54.0 in January. A reading above 50 indicates expansion.

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Service providers reported a rebound in business activity supported by gradually improving demand. Anecdotal evidence suggests that improved customer confidence this year has supported business activity and released pent-up demand.

However, companies noted that clients in the leisure, hospitality, and construction sectors face challenging market conditions.

New business grew for the third consecutive month in February, although the pace of expansion slowed since early 2026 and remained below the long-term survey average.

Strong domestic demand appears to be the main driver, as new overseas business nearly stagnated. Companies reported that the European economy remains sluggish, while those reporting growth cited new business in the US and emerging markets.

Backlog orders in February remained largely unchanged, contrasting with declines over most of the past two and a half years. Some firms reported that increased new orders reduced idle capacity, but this was offset by others noting that productivity improvements and investments in new technology allowed them to increase output without hiring additional staff.

Employment has fallen for the seventeenth consecutive month. The rate of decline slowed compared to January but remained slightly faster than in the second half of last year.

Respondents mentioned that due to reduced business demand and rising cost pressures, companies implemented hiring freezes and stopped replacing employees who left voluntarily.

Tim Moore, Chief Economist at S&P Global Market Intelligence, said: “In February, business activity in the UK services economy continued to recover, with growth near the five-month high seen in early 2026. Respondents noted increased intake of new business and improved sales channels. This is linked to higher spending by businesses and consumers, especially in the domestic market.”

The main factor driving input price increases in February was rising labor costs. Companies also reported that suppliers passed on higher prices for food and technology hardware, especially memory chips. Data showed a significant rise in average cost burdens, even as inflation slowed to a four-month low. Service providers raised their prices at a strong pace, the fastest since early 2025.

Overall, expectations for business activity over the next year remained optimistic in February, though down to a three-month low. About 50% of survey respondents expect their output levels to rise, while only 13% anticipate a decline. Service providers cited growth momentum supported by new product development, diversification strategies, and long-term investment plans.

The S&P Global UK PMI Composite Output Index for February was 53.7, unchanged from the 17-month high in January, indicating robust expansion in the private sector economy. This marks ten consecutive months of growth.

Faster manufacturing output in February helped offset the slight slowdown in service sector growth. Manufacturing activity rebounded strongly, the strongest since September 2024, with an index of 52.5, up from 51.6 in January.

Employment remains a weak point, with layoffs recorded in both manufacturing and services sectors. Private sector employment has fallen for the seventeenth month in a row.

Inflationary pressures eased slightly in February. Private sector firms reported that both input costs and output price inflation were below levels seen at the start of 2026.

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