At the close of the year, the UK service sector exhibited only a slight expansion as revealed by the S&P Global Purchasing Managers' survey released on Monday. This minimal growth occurred amidst the sharpest decline in employment seen in the past four years, driven by subdued demand and rising payroll expenses.
In December, the final Services Purchasing Managers' Index edged up to 51.1 from 50.8 in November, though it remained below the preliminary estimate of 51.4. An index reading above 50 signifies growth, whereas a score below that marks contraction within the sector.
New orders across the service sector were nearly stagnant, seeing only a minor increase. This was largely influenced by diminished client confidence following the Autumn Budget announcements, particularly concerning the anticipated hikes in employers' National Insurance contributions.
Weak customer demand was attributed to sluggish economic conditions both domestically and internationally. Notably, new export orders experienced a decline for the first time since September 2023, affected by lesser demand from EU markets.
As the year concluded, there was a notable contraction in employment, with the latest rate of workforce reduction marking the fastest since early 2021. This was mainly due to hiring freezes and the reluctance to replace departing staff amidst escalating payroll costs.
Looking forward, December revealed muted business optimism among service providers, attributed to restricted recruitment plans, tight budgetary constraints imposed by clients, and apprehensions regarding the broader UK economic climate.
On the pricing front, input price inflation reached an eight-month peak, propelled by increased costs for raw materials and wages. Consequently, the inflation rate for selling prices hit its highest level in six months.
The composite output index slightly decreased to 50.4 in December from 50.5 in November, suggesting a further softening in the growth of the UK's private sector economy.
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