British companies carried over the early-2026 lift in activity into a second month, according to preliminary S&P Global purchasing managers' survey results for February, but the rebound is occurring alongside significant job cuts in the services industry, in part attributed to higher employer taxes imposed by the Labour government.
The S&P Global UK Composite PMI rose to 53.9 in the preliminary February reading from 53.7 in January, marking the strongest composite reading since April 2024, before the current government took office. Readings above 50.0 signal expansion in business activity, while readings below that threshold indicate contraction.
"The early PMI data for February bring further signs of an encouraging start to the year for the UK economy," said Chris Williamson, S&P Global chief business economist. Williamson and the survey data suggest the January-February pattern is consistent with economic growth of about 0.3% in the first quarter of 2026, stronger than the roughly 0.1% expansion recorded in the fourth quarter of 2025.
While the composite reading edged higher overall, the details show a mixed picture across sectors. The services PMI eased slightly to 53.9 from 54.0 in January, whereas the smaller manufacturing sector posted an 18-month high at 52.0, up from 51.8.
Total new work rose at the fastest pace since September 2024, driven in part by an upturn in overseas demand for manufactured goods; new foreign orders for manufacturers expanded at the quickest rate in four-and-a-half years.
Prices charged by firms climbed at the fastest rate since last April, yet firms' input cost pressures, though still elevated, rose at the slowest pace in three months. That combination suggests only modest re-acceleration of price growth within the survey's coverage.
Labour market indicators from the survey were more concerning. Staffing levels fell especially sharply in the services sector, with some businesses reporting redundancies or hiring freezes. Several firms cited the higher social security payments introduced by finance minister Rachel Reeves in April 2025 as a factor increasing their wage-related tax burden and prompting workforce adjustments.
Some services companies are responding by investing in automation and other technology to support growth without adding headcount, according to survey respondents. The pattern of weaker employment alongside rising activity is a notable feature of the February snapshot.
Market and policy implications are mixed. Williamson said Bank of England policymakers are likely to be heartened by the signs of stronger growth, while also noting that "the relatively modest price pressures being signalled and ongoing worrying labour market weakness will likely result in a growing call for further rate cuts."
Investors are reported to be largely expecting the Bank of England to resume cuts to borrowing costs in March, as policymakers weigh softer inflation signals against the fragility in employment.
In sum, the preliminary February PMIs portray an economy with expanding activity at the start of 2026, supported by a stronger manufacturing pipeline and rising new business, but with pronounced strain on services-sector employment tied in part to higher employer social contributions. The survey points to modest inflationary pressure but ongoing labour market weakness that could shape coming monetary policy moves.