Private sector bounces back but Reeves leaves hospitality reeling
The UK’s private sector expanded at the fastest rate in nearly two years in the first month of 2026 but the reeling hospitality sector was still feeling the crunch from Labour policy.
The latest Flash Purchasing Managers Index (PMI) from S&P Global showed a major uptick in the all-important services sector, which is often seen as the engine of the economy making up over 80 per cent of output.
Fresh figures for January showed a “sustained improvement” in new order intakes across the private sector, taking business optimism to the highest since before the 2024 Autumn Budget.
“UK business kicked up a gear in January, showing encouraging resilience in the face of recent geopolitical tensions,” Chris Williamson, chief business economist at S&P said.
The PMI showed a reading of 53.9, up from 51.4 and maintaining a steady level above the 50.0 threshold, which indicates whether a sector is growing.
Williamson said the growth was supported by a recovering manufacturing sector as well as strong performances from financial services and technology.
Rhys Herbert, senior economist at Lloyds, said: “The latest PMI data suggests the UK economy maintained modest growth in January, delivering a positive start to the year. Notably, there have been some signs of a balanced expansion in both manufacturing and services, comparing positively with last year when growth was concentrated primarily in services.”
Hospitality hit by Labour policy
Despite the high levels of optimism, some good news was tempered by persisting cost inflation.
S&P said rising cost pressures triggered the greatest increase in average prices charged by private sector companies since August 2025.
Williamson said an upturn in order books failed to stem the flow of the cost crunch leading to a “steep loss of jobs” as firms face pressure to balance the books.
“These cost pressures were again often linked to government policies relating to higher national insurance contributions and the national minimum wage and led to an especially steep drop in hospitality jobs,” Williamson said.
The Labour government has been hounded to up its support for the hospitality sector after a major blunder on business rates reform left the industry reeling.
Ministers U-turned on the package earlier this week, announcing pubs would be the only businesses to benefit from tax relief after outcry from the industry.
Chancellor Rachel Reeves told the World Economic Forum on Wednesday: “The situation the pubs face is different from other parts of the hospitality sector but we will be setting out the detail in the next few days.”
According to the latest Morning Wire/Freshwater Strategy poll, 70 per cent of British voters believe hotels, restaurants and other struggling hospitality businesses should be included in any support measures ministers are preparing to hand pubs.