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Longest period of job shedding for 16 years

ended 04. February 2026

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Skyrocketing payroll costs means service sector firms simply aren't hiring according to the latest S&P Global UK Services PMI published this morning. January saw a robust increase in business activity across the service economy, with the headline seasonally adjusted S&P Global UK Services PMI Business Activity Index registering 54.0 last month, up from 51.4 in December and above the 50.0 no-change mark for the ninth consecutive month.

However, staff hiring remained a weak spot for the service economy, despite signs of a recovery in business activity and incoming new work. Employment numbers have decreased in each month since October 2024, which represents the longest period of job shedding for 16 years. Moreover, the latest survey indicated a faster decline in workforce levels than in December. Anecdotal evidence highlighted squeezed margins, fragile market conditions and efforts to boost productivity through automation as reasons for the non-replacement of voluntary leavers.

Tim Moore, Economics Director at S&P Global Market Intelligence, said: "The latest survey revealed an encouraging start to 2026 for the UK service sector, following a sluggish end to last year. Output growth was the fastest for five months, supported by an uplift in investment sentiment and greater new order intakes. A number of firms suggested that post-Budget clarity had contributed to a broader improvement in client confidence, while some also cited rising export sales.

"Despite a recovery in total new work, service providers still reported that consumer demand was constrained by squeezed disposable incomes, while risk aversion in response to geopolitical tensions was a factor holding back business spending.

“Service sector companies appear cautiously optimistic about their growth prospects for the next 12 months, with confidence the highest seen since October 2024. However, there were again gloomy signals for the UK labour market outlook as staff hiring decreased at a steeper pace in January as firms looked to offset rising payroll costs.”

5 responses from the Newspage community

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Samuel Mather-HolgateVerified
Managing Director & IFA at Mather and Murray Financial
The confidence that businesses are showing in this survey is simply not translating into the jobs market. Labour have hiked the minimum wage well above inflation again, and also slapped on taxes for hiring people. This has impacted UK businesses and made them reluctant to hire. If Starmer and Reeves want growth they need to stimulate the jobs market and raising taxes on jobs is not the way to go about it.
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Michelle LawsonVerified
Director at Lawson Financial
The deluge of job losses continues. This likely a response to the tax hikes and minimum wage increases that the government have imposed on the UK business community. The way out of the crisis is not heavy taxation. This is an inhibitor and is strangling the economy, alongside pressure from AI, global tensions and general economic uncertainty. The Chancellor really needs to get a grip of this unless her intention is to drive the UK into the bin. I can't imagine that this will be the legacy she or the PM requires as their reputations are already heavily tarnished.
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Kate UnderwoodVerified
Founder & Chief People Strategist at Kate Underwood HR and Training
Busy doesn’t pay the bills. Margin does. And payroll is chewing it up. This PMI is the story of small service businesses right now. Work is picking up and confidence is creeping back, but hiring is still sliding because the cost of employing people has jumped. So firms freeze recruitment, don’t replace leavers, and lean on automation to stop the numbers bleeding. I get it. You’re not being mean. You’re being practical. But “just cope” is how good teams break. Workloads creep, quality dips, sickness rises, and your best people start eyeing the exit. That gets expensive fast. If you can’t hire, don’t wing it. Cut the busywork, tighten the process, and be brutally clear on priorities. If the role genuinely needs a human, price your service like it does and recruit properly. And keep an eye on who’s carrying the extra load. Uneven pressure is where grievances and discrimination risks love to breed.
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Rohit Parmar-MistryVerified
Founder at Pattrn Data
The 16-year high in job shedding is a sign of a service sector desperately trying to buy efficiency through 'automation theatre.' Firms are treating humans as inconvenient costs to be automated away, but replacing people with algorithms to save on payroll is a race to the bottom.

In our AI Audits, we see this constantly: firms move to 'blunt-force' automation, hoping technology can fill the gap left by voluntary leavers. But if you automate a broken process, you just get faster chaos. The real winners will be those practicing human-centred automation.

The goal shouldn't be 'calls deflected', it should be using AI to strip away admin drudgery so your team can actually do their jobs. By augmenting humans rather than replacing them, you scale without losing the service quality that justifies your growth. If your automation strategy is just a headcount reduction plan in disguise, expect a customer service crisis by Q3. Technology serves people, not the other way around.
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Colette MasonVerified
AI Ethics Consultant at Clever Clogs AI
This PMI exposes a contradiction policymakers keep dodging: activity can rise while jobs quietly disappear.

Service are boxed in. Payroll costs are rising faster than pricing power, margins are thin, and uncertainty makes long-term hiring a gamble. So businesses do the only rational thing left: freeze recruitment, don’t replace leavers, and squeeze more out of fewer people, often via automation.

Blaming this entirely on minimum wage rises or tax changes is too neat. Costs matter, yes, but the deeper issue is fragility. When firms feel they have no slack, labour becomes a risk rather than an asset. That’s when employment falls even as demand ticks up.

The danger signal isn’t just job losses. It’s what happens inside the firms that remain “busy but hollowed out”. Workloads creep, productivity gains flatten, service quality slips, and burnout becomes an invisible operating cost.

Automation fills gaps in spreadsheets, not in judgement, resilience, or customer trust.