UK services sector records 23‑month streak of job cuts as cost pressures mount

Employment in the UK services sector fell for the 23rd consecutive month in August, as firms kept hiring freezes and trimmed headcounts amid mounting cost pressures. The latest S&P Global Market Intelligence Purchasing Managers Index (PMI) shows the sector’s workforce reductions are the longest uninterrupted run on record since the series began in 1996.

Rising costs drive cuts and automation

Businesses cite surging fuel, transport and wage bills as the main drivers of the slowdown. Some mid‑size firms are turning to automation to preserve productivity while labour costs climb. A cost calculator from the British Chambers of Commerce estimates a typical UK firm will spend roughly £827,000 more each year than in 2016, a rise linked to domestic policy decisions. The pressure on small and medium enterprises is evident, with many eyeing the SME funding competition launched by Alibaba.com for additional support.

Optimism amid a cautious outlook

Despite the prolonged slump, the PMI rose to a headline reading of 52.5 in August, up from 52.1 in July, staying above the neutral 50.0 threshold that separates growth from contraction. Tim Moore, economics director at S&P Global Market Intelligence, said the data points to a modest recovery in new business and confidence.

Service providers are increasingly optimistic about the year ahead business outlook, with confidence levels now close to those seen just prior to the Middle East conflict.

Political and fiscal backdrop

Andy Burnham and John Healey face a test of maintaining momentum as the new government’s first Budget approaches on 28 October. Global bond yields have risen on higher oil prices, squeezing the Treasury’s fiscal headroom to about £13 billion, down from earlier forecasts of £15 billion. The Office for Budget Responsibility may need to revise up its debt‑interest projections for 2030, with debt service costs slated to reach roughly £135 billion over the next five years.

Economists warn that larger tax increases are likely as the Chancellor seeks to fund cost‑of‑living support, defence spending and preserve fiscal space. The combination of tighter budgets and persistent cost pressures could keep the services sector in a hiring freeze for the foreseeable future.