January was the worst month for the UK’s services sector in two years, with output falling as consumers and businesses cut back on spending.
The monthly survey of UK purchasing managers by S&P Global and CIPS found that strikes, worker shortages and higher interest rates were all hitting activity.
The S&P Global / CIPS UK Services PMI fell to 48.7 in January, down from 49.9 in December.
This shows the fastest decline in business activity since January 2021, and is the fourth month running in which the PMI has been below 50, which shows a contraction.
This underlines the Bank of England’s concerns that the economy will contract during 2023.
Companies which reported a drop in business activity typically cited squeezed household incomes and cautious budget settling by corporate clients, due to high inflation and rising economic uncertainty.
Tim Moore, economics director at S&P Global Market Intelligence, says:
The latest survey illustrates that the UK economy risks falling into recession as labour shortages, industrial disputes and higher interest rates take their toll on activity.
“However, the downturn in service sector output remained relatively shallow at the start of 2023. Encouragingly, new order volumes moved closer to stabilisation and export sales picked up in January, which contributed to a marginal upturn in overall employment numbers.
There are signs that inflation is easing, with companies reporting that lower fuel bills lead to another slowdown in cost inflation. Business optimism rebounded to its highest since April 2022.