Service sector firms cut jobs at the fastest rate for four years last month, as concerns over subdued consumer sentiment worsened.
The closely watched S&P Global UK services PMI survey scored 50.8 in January, down from 51.1 in December and the joint lowest level for 15 months.
Any reading above 50 means a sector is in growth, while a score below this means it is shrinking.
The January score was slightly behind the 51.2 reading predicted by a consensus of economists.
While the sector saw a slight growth in output in January, firms reported that the rate of cost inflation was also the highest for nine months, which in turn pushed up prices for consumers.
Tim Moore, economics director at S&P Global Market Intelligence, pointed to rising taxes announced in the October Budget as one of the reasons for a “challenging” environment for services firms.
He said “stagflation conditions” – a combination of rising inflation and sluggish economic growth – appeared to take “a firmer hold”.
“Output levels increased only marginally, while input cost inflation accelerated for the fifth month in a row to its highest since April 2024.
“Businesses widely noted sharply rising salary payments, and many also felt the impact of suppliers passing on forthcoming increases in employers’ national insurance contributions.”
He added that high interest rates and geopolitical uncertainty are among the other headwinds facing companies.
“The twin perils of shrinking workloads and rising payroll costs meant that many service providers put the brakes on recruitment in January,” he said.