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Companies in the UK’s services sector cut jobs last month, as they turned to “automation” rather than hiring new staff, a closely watched survey showed.
The monthly purchasing managers’ index showed employment numbers fell more sharply in January compared with December, continuing a trend that started in October 2024.
The PMI survey, which is considered to be one of the most reliable indicators of how a sector is performing, said this was the “longest period of job shedding” in the UK services sector in 16 years, with firms also choosing not to replace voluntary leavers.
The survey compiled by S&P Global said anecdotal evidence suggested some companies were turning to automation to make up for the staffing shortfall and increase productivity, alongside squeezed margins and fragile market conditions also affecting hiring decisions.
Tim Moore, the economics indices director at S&P Global Market Intelligence, said: “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.”
Services form the largest sector of the UK economy, contributing nearly 80% to the country’s output. The sector ranges from the hotel and catering industries to legal and financial firms.
The survey was released as investors attempted to digest the implications of artificial intelligence expected to automate work in the publishing and legal software industries.
On Tuesday, Anthropic, the company behind the chatbot Claude, said its tool could automate legal work, sending shares in publishers and data companies falling sharply. The sell-off in those companies began in London and spread through global markets, continuing into Wednesday despite the FTSE 100 hitting a record high.
Some of those industries employ large numbers of staff in entry level positions, meaning they have been more badly affected by rises in the national living wage and increases in employers’ national insurance contributions since last April.
This has occurred against a backdrop of widespread rising costs, such as higher energy and food prices, as well as a shake-up of business rates that will push up some bills and has sparked criticism of the government by companies.
However, business activity in the services sector got off to a good start overall in 2026 after a weak final quarter, with output rebounding to a five-month high.
The PMI survey indicated activity had risen to a balance of 54 in January, up from 51.4 in December, and was the fastest pace of expansion since August. Any reading above 50 indicates growth, while a figure below suggests contraction.
When combined with January’s PMI survey for manufacturing, the combined reading showed business activity in the UK at a 17-month high in January.
The survey said part of the improvement came from a lift in sentiment after the budget in late November ended months of speculation about potential tax rises, and delayed projects and investment could begin again.
Expectations for an upturn in business activity were also the strongest since October 2024, when the chancellor, Rachel Reeves, imposed unexpectedly big tax rises on companies in her first budget despite companies’ concerns about geopolitical risks and weak consumer demand.
