Services sector strengthens as firms ‘find their feet’ after tax increases

The S&P Global UK services PMI survey, which is watched closely by economists, scored 52.5 in March, up from 51.0 in February.

Any reading above 50 means the sector is growing, while a score below means it is contracting.

March’s score was nonetheless behind the 53.2 that was predicted by a consensus of economists.

There were pockets of consumer and business spending growth across the sector last month, with the level of new work for businesses rising at the quickest pace since November, according to the data.

However, the researchers pointed out that growth was concentrated in a few sub-sectors, mainly technology and financial services – meaning many firms continued to grapple with tougher business conditions.

Tim Moore, economics director at S&P Global Market Intelligence, said: “March data revealed an acceleration in UK service sector growth to its fastest since August 2024 as a renewed upturn in new orders helped to boost overall business activity. However, the subsequent modest recovery in private sector output has been sustained by a relatively narrow segment of the UK economy, primarily technology and financial services.

“Transportation, leisure and hospitality firms reported weak business conditions in March, while the manufacturing sector saw its fastest drop in production since October 2023.”

The PMI survey incorporates the responses of hundreds of companies across the UK’s services sector, which includes hospitality, entertainment and culture, finance and insurance, and real estate and business services.

The wide-reaching industry is a dominant part of the UK economy.

Mr Moore said the respondents were grappling with things such as “stretched household budgets” and “rising geopolitical uncertainty”.

“Worries about increasing wages and the impact of forthcoming US tariffs were the most cited challenges in March,” he said.

In a sign that confidence has taken a hit, firms have been cutting jobs for six months in a row.

This has partly been driven by efforts to mitigate the impact of rising national insurance contributions and higher staff wages, the survey revealed.

Firms have been trimming down staff levels through redundancies and hiring freezes.