Output rise ignores fastest decline in new work since November 2022 Fastest pace of job losses in more than four years Rising wages support another sharp increase in input costs Marginal growth continues, but job losses accelerate
Data from S&P Global UK Services PMI survey indicated that the sector achieved another slight rise in production levels. However, new orders and employment figures fell at faster rates than at the start of 2025. The latest decline in employment was the sharpest since November 2020, which was linked to weak demand and sharply higher input prices. Overall cost inflation has slowed since January but has remained much faster than during the second half of last year.
The S&P’s main global services business activity index came in at 51.0 in February, slightly above 50.8 in January and above the neutral 50.0 threshold for the 16th consecutive month. However, the latest reading was well below the long-term series average (54.3) and indicated only marginal expansion in services sector output.
Total new business fell for the second consecutive month and at the fastest pace since November 2022. Lower sales volumes were mostly attributed to reductions in business investment among customers, growing economic uncertainty, and persistent headwinds of discretionary consumer spending. Export sales fell again in February.
Anecdotal evidence suggested that weak demand across Europe offset gains in new business across Asia and the United States. About a third of respondents reported an increase in average cost burdens in February, compared to just about 2% who reported a decrease. This mostly reflects rising salary payments and the efforts of suppliers to pass on rising salary costs. The sharp rise in operating expenses has contributed to another strong increase in prices being charged throughout the services economy.
Why is the final PMI for the services sector important for GBP?
The final PMI for the services sector is important for GBP for several reasons:
Economic Health Index: The PMI provides insight into the health of the services sector, a key component of the UK economy. A strong services sector typically indicates economic growth, while a weak reading may indicate contraction.
Market Sentiment: The PMI can influence investor sentiment. A reading above 50 indicates expansion, while a reading below 50 indicates contraction. Positive data can boost confidence in GBP, while negative data may lead to depreciation.
Implications for monetary policy: The Bank of England takes PMI data into account when making decisions on interest rates and monetary policy. Strong PMI readings may lead to expectations of interest rate hikes, which could support GBP. Weak readings could lead to expectations of interest rate cuts or accommodative policies.
Impact on the outlook: Analysts use PMI data to predict GDP growth. A strong performance of the services sector could lead to upward revisions to growth expectations, positively impacting GBP. Traders may react quickly to reassess their positions based on new economic projections.
Market reactions: Traders often react quickly to PMI releases. A big PMI surprise can lead to immediate fluctuations in GBP exchange rates as market participants adjust their positions.
In short, the final PMI for the services sector is a critical economic indicator that can affect the pound sterling through its effects on economic health, market sentiment, monetary policy and trading behavior. Conversely, a weak reading may raise concerns about an economic slowdown.
How does the final PMI for the services sector affect market sentiment in relation to the UK economy?
The final PMI for the services sector affects market sentiment relative to the UK economy in several key ways:
Economic Performance Index: A strong reading of the final PMI for the services sector suggests that the services sector is expanding, which could lead to positive perceptions of overall economic health. Conversely, a weak reading may raise concerns about the economic slowdown.
Investor confidence: Positive PMI data boosts investor confidence in the UK economy, encouraging investment and spending. This should boost the pound as investors seek to capitalize on growth prospects.
Expectations on monetary policy: The PMI affects expectations on monetary policy. Strong readings may lead market participants to expect interest rate hikes from the Bank of England, which could boost GBP’s appeal.
Market volatility: Sudden changes in the PMI, especially if they deviate significantly from expectations, may lead to increased volatility in financial markets. Traders may react quickly to reassess their positions based on new economic projections.
Impact on consumer sentiment: PMI can also affect consumer sentiment. A strong services sector may boost consumer confidence, leading to increased spending, further supporting economic growth.
Comparative analysis: Investors often compare the UK PMI with other countries’ indices. A strong UK PMI compared to its peers could boost GBP’s appeal, while a weak performance could reduce its attractiveness.
In short, the final PMI for the services sector serves as a measure of the health of the economy, shaping perceptions and expectations that affect market sentiment and ultimately affect the value of the pound.
