UK Services PMI January 2026 Shows Growth Despite Rising Costs

Britain’s services sector started 2026 on a strong note, with the latest S&P Global UK services PMI January 2026 survey showing robust growth and rising business confidence. The index climbed to 54.0 in January, up from December’s 51.4, marking the highest reading since August 2025.

While the expansion signals optimism, firms reported increased costs, highlighting ongoing challenges for the Bank of England as it prepares for its interest rate decision later this week.

Services Sector Growth and Confidence

Expectations for future output reached their strongest levels since October 2024, despite concerns over geopolitical risks and weak consumer demand. Tim Moore, S&P Global’s economics director, noted that clarity following the budget measures has contributed to improved business confidence.

The composite PMI, combining services and manufacturing, rose to 53.7 in January, the highest since August 2024, reflecting a solid start for the UK economy in 2026. Services export orders also increased at the second-fastest pace since October 2024.

Rising Costs and Labour Market Challenges

Despite slower growth in input costs compared to December, companies raised prices at the fastest rate since August. Hiring declined for the 16th consecutive month, the longest continuous drop since 2010, as firms—particularly in hospitality—opted not to replace departing staff amid higher wages and economic uncertainty.

The UK minimum wage is set to increase by 4.1% to £12.71 an hour in April, following a 6.7% rise last year. Rising payroll costs remain a key concern for businesses navigating the early months of 2026.

Implications for the Bank of England

The Bank of England is expected to maintain its policy rate at 3.75% on Thursday while monitoring services price inflation closely. Investors are anticipating one or two quarter-point rate cuts in 2026 as the BoE balances growth with inflation pressures.