For the first time in over a year, new work for firms in the crucial services sector has declined, according to a closely monitored survey, indicating a grim outlook for the º£½ÇÊÓƵ economy.
The survey revealed that incoming work for services companies dropped in January, bringing an end to a 14-month streak of continuous growth, as reported by .
Many firms participating in S&P’s purchasing managers’ index (PMI) attributed this slump in demand to the Budget, which has played a part in dampening business sentiment.
Global economic uncertainty was also cited as a factor contributing to the decrease in new work, as per the survey.
It further indicated that exports fell for the second consecutive month, although US demand remained relatively robust compared to "lacklustre" spending in Europe.
"A renewed downturn in new business volumes added to signs that the near-term º£½ÇÊÓƵ economic outlook remains tilted to the downside," commented Tim Moore, economics director at S&P Global Market Intelligence.
The overall services PMI recorded 50.8 in January, matching the lowest level in 15 months. This figure is a drop from 51.1 in December and slightly below the earlier ‘flash’ estimate.
A reading above 50 signifies growth. The survey also provided additional evidence of the Budget's impact on businesses, with input prices escalating at the quickest rate since April 2024 due to increased salary payments and suppliers' attempts to pass on higher payroll costs.
As costs continue to mount, data reveals that the rate of job shedding has quickened to its sharpest since January 2021. Numerous respondents have directly attributed this shift to the consequences of the national insurance increase.
"The twin perils of shrinking workloads and rising payroll costs meant that many service providers put the brakes on recruitment in January," commented Moore on the situation. Furthermore, the inflation within the services sector saw the highest spike in 13 months, despite efforts by some companies to curtail prices with the aim of stimulating sales.
Rob Wood, who is the chief º£½ÇÊÓƵ economist at Pantheon Macroeconomics, interpreted the survey as indicative of a resurgence in services inflation, potentially exceeding five percent.
"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," remarked Wood on the anticipated policy response.
In light of these developing conditions, numerous economic experts have downgraded their forecasts for the º£½ÇÊÓƵ's economy for this year, pointing to the repercussions of the Budget on business operations.
