UK Service Sector Records Lacklustre Growth in December
Lacklustre business activity growth continued across the UK service sector at the end of 2025. The UK S&P Global Composite PMI was at 51.4 in December of 2025, inching higher from 51.2 in the previous month but revised sharply lower from the preliminary estimate of 52.1 and missing the initial market estimates of 51.6.
Still, the result reflected the eighth consecutive period of expansion in British private sector activity, with a slightly firmer expansion for services compared with 51.3 in November and an extension to the rebound for manufacturers, which was their highest reading in over one year.
New work at the aggregate level rebounded moderately, but higher employment costs and uncertainty for future demand expectations drove employment numbers to fall at a robust pace.
Likewise, input cost inflation accelerated for the second month to its highest since May, driving output charges to rise the most in four months.
UK service providers indicated a rise in business activity for the eighth successive month. However, the pace of expansion was only marginal and little changed since November.
At 51.4 in December, up fractionally from 51.3 in the previous month, the headline seasonally adjusted S&P Global UK Services PMI Business Activity Index remained much weaker than its long-run trend (54.2). The index was also lower than the earlier ‘flash’ reading of 52.1 in December.
Survey respondents continued to report challenging business conditions, sales headwinds from subdued UK economic prospects, as well as constrained client spending linked to domestic political uncertainty.
That said, some firms commented on tentative signs of a recovery in client confidence after a prolonged phase of anxiety in the lead up to the Budget.
December data pointed to a renewed upturn in total new work, following a marginal decline during the previous survey period. Although only modest, the rate of new business expansion was much faster than the average seen in 2025 as a whole.
Service providers commented on improved sales pipelines in both domestic and export markets, helped by a general upturn in demand conditions.
New business from abroad increased moderately in December, which ended a three-month period of decline. Anecdotal evidence often pointed to greater volumes of new work from US clients, but there were again many reports of weak EU demand.
Higher-than-expected volumes of new business contributed to an increase in backlogs of work for the first time since May 2023. Some survey respondents also commented on renewed capacity pressures at their business units, while others cited the impact of supplier delays.
Cautious hiring policies persisted at the end of 2025. Around 21% of the survey panel reported a decline in employment, while only 12% signalled a rise. The respective seasonally adjusted index pointed to an overall decline in staffing numbers for the fifteenth month in a row.
There were widespread reports citing elevated pay pressures and squeezed margins as reasons for the non-replacement of voluntary leavers. Although still solid, the overall pace of job cuts moderated since November.
In contrast to the subdued picture for staff hiring, the index measuring business activity expectations for the year ahead improved from November and was the second-highest since October 2024. Just over half of the survey panel (52%) predict an upturn in output levels over the course of 2026, while only 14% anticipate a decline.
Service sector firms attributed confidence to forthcoming business investment plans, alongside lower borrowing costs and hopes of a sustained turnaround in business and consumer spending.
However, there were also many reports of tight budget setting by clients and pressure on margins from rising costs. Average cost burdens rose at a sharp and accelerated pace in December.
This was often linked to wage inflation and greater fuel costs. The overall rate of input price inflation was the fastest since May. Output charges also increased markedly and at a much stronger pace than November’s near five-year low, despite many reports of squeezed pricing power.
Commenting, Tim Moore, Economics Director at S&P Global Market Intelligence, said: “Lacklustre business activity growth continued across the UK service sector at the end of 2025. Moreover, the speed of expansion was softer than signalled by the earlier ‘flash’ survey in December and lower than seen on average in the second half of the year.
“The most positive development was a renewed upturn in new business intakes, following a slight decline during November. Modest growth of incoming new work was attributed to tentative signs of a recovery in client confidence after an extended period of pre-Budget gloom. Order books were also supported by a marginal rebound in export sales.
“However, survey respondents still noted sales headwinds linked to weak UK economic prospects, alongside challenging operating conditions due to factors such as sharply rising business costs and soft demand in major overseas markets.
“Worries about squeezed margins and broader growth prospects contributed to another marked reduction in service sector employment during December.
“Meanwhile, inflationary pressures across the service economy strengthened at the end of the year. Input prices rose to the greatest extent in seven months, and output charge inflation rebounded from November’s recent low, despite the subdued demand backdrop. EUR Weakens After European Inflation Data, DYX Index Rebounds
