UK firms cut jobs for 20th straight month as services collapse
Key Points
- unbroken stretch in the recent S&P Global series.
- The S&P Global Flash UK PMI Composite Output Index fell to 48.5 in May, the first contraction since April 2025 and a 13-month low.
- Services PMI Business Activity dropped to 47.9, a 64-month low and the sharpest decline since January 2021.
- Manufacturing bucked the trend with a three-month output high tied to customer front-loading ahead of price rises.
- S&P Global Chief Business Economist Chris Williamson warned of stagflation pressure leaving the Bank of England in a bind on interest rates.
UK private sector firms cut jobs for the 20th straight month in May, with services driving an accelerated pace of job losses.
The S&P Global Flash UK PMI Composite Output Index fell to 48.5 from 52.6 in April, a 13-month low and the first reading below the 50.0 mark separating growth from contraction since April 2025.
The Services PMI Business Activity Index dropped to 47.9 from 52.7, a 64-month low and the sharpest decline since January 2021. Services activity has not fallen this low outside of the pandemic since July 2016.
Manufacturing is one sector which bucked the trend. The Flash UK Manufacturing Output Index rose to 52.4 from 51.8, a three-month high, and the headline Manufacturing PMI held at 53.7.
Factories got a temporary boost as customers front-loaded orders to beat anticipated price hikes and supply disruptions, with some firms also reporting elevated demand tied to data centre rollouts.
In one instance highlighted by the survey, panel members pointed to delayed consumer spending decisions linked to the Middle East war, particularly around international travel. Panel members also pointed to domestic political uncertainty and subdued sales pipelines as weighing on client confidence.
“The UK economy is facing a perfect storm, as rising political uncertainty adds to the growing impact from the war in the Middle East. Businesses are reporting falling output, surging inflation, supply shortages and job cuts in May,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
A record run
The 20-month run of job losses is the longest unbroken stretch of private sector payroll reductions in the recent series.
Backlogs of work fell again, indicating businesses have spare capacity and little immediate need to hire. The pace of service sector job shedding accelerated in May, marking the most significant shift in the latest data.
Around 66% of manufacturers and 51% of service providers reported higher costs in May, driven by rising oil prices, transportation bills, energy and raw material costs, alongside strong wage pressures.
Prices charged by firms continued to rise sharply, with manufacturing factory gate prices climbing at their fastest pace since July 2022. Goods producers cited fuel surcharges and efforts to pass on raw material price increases linked to the Middle East war.
International shipping delays hit manufacturing supply chains again. Around 26% of survey respondents reported a downturn in supplier performance in May, against only 1% reporting an improvement.
Pre-production inventory accumulation across manufacturing was the fastest since July 2022, with stocks of finished goods also rising at an accelerated pace.
Questions for the Bank of England
The Bank of England now faces a bind between containing inflation and avoiding a deeper downturn.
Business optimism for the year ahead dropped to its lowest level since April 2025, with weaker growth expectations in services more than offsetting a slight improvement among manufacturers.
Williamson said the survey points to a 0.2% quarterly contraction, with manufacturing’s current boost likely to fade as stockpiles fill up.
“This combination of a faltering economy and spiking price pressures leaves the Bank of England in a major quandary, facing the growing need to hike rates to help contain inflation but thereby adding to recession risks,” said Williamson.
