UK service firms are cutting jobs at the sharpest rate since November 2020 as fears about the state of the economy spread.

S&P Global’s latest UK Services PMI, which measures business activity in the services sector, found that 24 per cent of firms cut their employees in February, compared to only 13 per cent which increased their headcount.

Employment in the services sector has now decreased for five months in a row, the longest period of falling employment since 2011, aside from the pandemic.

Rising payroll costs were cited as a key factor in the report’s layoffs, with a third of firms reporting an increase in their cost burdens during the month compared to only two per cent that reduced them.

Despite the issues, S&P’s UK Services PMI Business Activity Index was up fractionally, increasing to 51 in February from 50.8 in January, though still below the long-run average of 54.3.

“There has been a clear loss of growth momentum since last autumn and the survey’s forward-looking indicators continue to suggest an elevated risk of stagflation on the horizon,” explained Tim Moore, economics director at S&P Global Market Intelligence.

Total new business decreased for the second month running in February at the fastest pace since November 2022, which firms attributed to lower business investment among clients, heightened economic uncertainty and fears around consumer spending.

“Demand conditions softened in both domestic and export markets, with total new work falling to the greatest extent for just under two-and-a-half years,” added Moore.

“Business services were hit by cutbacks to investment spending among clients and delayed decision-making due to broader geopolitical headwinds.”

Export sales continued to decline, with new work from abroad declining at its steepest level since 2021.

“Anecdotal evidence suggested that weak demand across Europe had offset gains in new work across Asia and the US,” said the survey.