UK Economy Shows February Growth but Rising Costs Keep Pressure on Bank of England

The United Kingdom’s economy continued to expand in February as the services sector maintained steady growth, though rising costs and ongoing job reductions remain a concern for policymakers ahead of the Bank of England’s next interest rate decision.

New business surveys indicate that activity across Britain’s services industry remained resilient despite wider economic uncertainty. The Services Purchasing Managers’ Index compiled by S and P Global recorded a reading of 53.9 in February, slightly below January’s 54.0 but still comfortably above the level that signals economic expansion.

A figure above 50 indicates growth while a reading below that threshold suggests contraction. Although the index dipped slightly, the results suggest that businesses across sectors such as hospitality, finance, transport and professional services continued to experience improving demand during the month.

The broader composite index, which combines services data with manufacturing activity, also showed encouraging results. The overall index remained at 53.7 in February, marking one of the strongest readings since the summer of 2024 and reflecting stable momentum in the wider economy.

However the data also revealed signs of pressure within the labour market. Despite stronger activity levels, companies continued to reduce staffing levels as they sought to manage rising operating costs and improve productivity. February marked the seventeenth consecutive month of declining hiring across the private sector.

Economists say the trend reflects businesses adjusting to higher wage costs and uncertain economic conditions. Many companies are becoming more cautious about expanding their workforce as they deal with persistent inflation and shifting global economic risks.

Labour costs remain one of the biggest challenges for businesses. The UK minimum wage is scheduled to increase again in April, rising to 12.71 pounds per hour following a previous increase last year. While the policy aims to support workers facing higher living costs, employers say the changes also add pressure to company budgets.

Businesses participating in the survey reported that payroll expenses were among the main drivers of rising input costs. Although cost increases slowed slightly compared with earlier months, companies said the overall level of expense growth remained significant.

Many firms have responded by raising prices charged to customers. According to the survey, the pace at which service companies increased their prices accelerated during February and reached the fastest rate recorded since August of last year.

This combination of stable economic growth and persistent price pressure presents a difficult balancing act for the Bank of England. Policymakers are closely monitoring service sector inflation because it often reflects domestic cost trends such as wages and operating expenses.

Financial markets currently expect the central bank to maintain its benchmark interest rate at around 3.75 percent in its upcoming policy meeting. Officials have signalled that future rate cuts will depend on clearer evidence that inflation is falling consistently toward the bank’s target.

Global developments could also influence the outlook. Investors have recently reduced expectations for interest rate reductions this year due to concerns that geopolitical tensions and higher energy costs could push inflation higher again.