UK service sector employers reduced staffing levels in January as businesses increasingly relied on automation rather than recruiting new employees.
The latest purchasing managers’ index (PMI) revealed that job losses accelerated in January compared with December, extending a pattern that began in October 2024. The survey highlighted the longest period of workforce reductions in the sector for 16 years, with many organisations also choosing not to replace staff who left voluntarily.
Compiled by S&P Global, the survey found that companies are using automation to offset labour shortages and improve efficiency. Firms are also responding to squeezed profit margins and uncertain market conditions, which have made hiring decisions more cautious. The services sector accounts for nearly 80% of UK economic output and includes industries such as hospitality, professional services, and financial firms.
The findings come amid growing investor concern that artificial intelligence will replace certain professional roles. This followed an announcement by Anthropic, the developer of the Claude chatbot, claiming its technology could automate parts of legal work. The news triggered share price falls among publishing and data businesses, initially in London before spreading globally, despite the FTSE 100 reaching a record high.
Entry-level roles in several service industries have been particularly affected by rising employment costs. Increases to the national living wage and employer National Insurance contributions, alongside higher energy, food and business rate expenses, have placed additional financial pressure on organisations.
Despite these challenges, business activity in the services sector strengthened at the start of 2026. The PMI rose to 54 in January, up from 51.4 in December, marking the fastest expansion since August. Combined with manufacturing data, overall UK business activity reached a 17-month high, supported by improved confidence following November’s Budget announcement.