- The UK’s service and manufacturing sectors both saw major cost increases
- Many surveyed companies cited greater expenses on wages and energy bills
Average prices charged by private employers climbed at the fastest pace for 18 months in January.
S&P Global said the UK’s service and manufacturing sectors both experienced steep cost increases, with many surveyed businesses citing greater expenses on wages, energy bills, and prices for imported raw materials.
As a result, input price inflation accelerated, leading to some companies significantly hiking prices for customers and causing inflation to jump at its quickest pace since July 2023.
S&P Global also blamed cost pressures for negatively impacting staffing levels for the fourth successive month as some firms either froze new hires or did not replace voluntary departures.
Many businesses have curtailed their recruitment efforts in response to the upcoming hike in National Insurance contributions announced in last October’s Budget.
From April, employers’ NI rates will increase from the current 13.8 per cent rate on annual salaries above £9,100 to 15 per cent on wages exceeding £5,000.
Inflation: Average prices charged by private employers soared at the fastest pace for 18 months in January, according to S&P Global
Yet the UK achieved a marginal uptick in business activity, partly thanks to the manufacturing industry contracting far more slowly than in December.
Consequently, S&P Global’s flash UK PMI composite output index rose slightly to a three-month high of 50.9 in January, from 50.4 the previous month.
Any number exceeding 50 indicates expansion, while anything below that denotes contraction.
Companies with growing business activity benefited from new product launches, as well as successful marketing strategies and attempts to settle unfinished work.
However, overall new work declined at the quickest levels since October 2023 due to subdued underlying demand and reductions in non-essential spending.
Chris Williamson, chief business economist at S&P Global, said: ‘The first indicators of business conditions in 2025 add to the gloom about the UK economy.’
He added: ‘While output growth ticked higher, the improvement does little to move the dial on a speedometer which points to an economy that is broadly flatlining.’
The UK’s economy grew by just 0.1 per cent in November 2024 after flatlining between July and September, according to the Office for National Statistics.
Growth is being held back by low public investment, high interest rates, and subdued business confidence following the recent Budget.
Companies will be eyeing the Bank of England’s monetary policy committee (MPC) meeting on 6 February, hoping another base rate cut is announced.
Thomas Pugh, an economist at RSM UK, said lower interest rates ‘would further help to stabilise markets,’ although he warned that the combination of ‘weak growth and rising inflation is a nightmare trade-off for the MPC.’
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