Service sector firms have cut jobs at the fastest rate for almost four years amid concerns over subdued consumer sentiment, despite a slight improvement in activity last month.
The closely watched S&P Global UK services PMI survey scored 51.1 in December, up from 50.8 in November. The previous score had been its lowest reading for over a year.
Any reading above 50 means a sector is in growth, while a score below this means it is shrinking.
It was slightly below the 51.4 reading predicted by a consensus of economists.
Tim Moore, economics director at S&P Global Market Intelligence, said: “The service sector ended last year with only a marginal upturn in business activity and a near-stalling of incoming new work.
“Survey respondents suggested that falling business and consumer confidence, largely due to worries about domestic economic prospects in 2025, had led to a considerable loss of growth momentum.
“While most parts of the UK service economy noted weak demand and cutbacks to client budgets, there remained pockets of strong growth in areas such as technology services.”
Firms said they have subdued sales pipelines, with total new orders close to stagnation for the period.
It came as new export sales declined for the first time since September 2023, with cautious sentiment across global economies.
The influential survey also reported that weak demand and higher payroll costs caused the steepest decline in employment in the sector since January 2021, as firms prepare for further labour cost increases in April.
Nearly twice as many surveyed businesses (23%) reported a fall in workforce levels as those that signalled a rise (12%).
Service companies widely commented that they have frozen hiring activity or said they are not replacing departing workers because of high staffing costs.
Constrained recruitment plans, tight budget setting among clients, and worries about the broader UK economic outlook all contributed to subdued business optimism in December, the survey found.
The level of positive sentiment from businesses was at the joint-lowest level for two years, with the reading in the previous month.
