Finance
UK economy expands in February but persisting cost pressures pose challenge for BoE
Published by Global Banking & Finance Review®
Posted on March 4, 2026
3 min readLast updated: March 4, 2026
Quick Summary
UK’s services sector continued to expand in February, with the PMI at 53.9, yet employment declined amid input cost pressures and minimum wage increases—complicating the Bank of England’s outlook.
UK Economy Grows in February as Cost Pressures Remain a BoE Challenge
Britain's Services Sector Performance and Economic Outlook
Robust Growth in Services Sector
LONDON, March 4 (Reuters) - Britain's services sector grew robustly during February, according to a survey on Wednesday that also showed job cuts and price pressures persisted, a potential worry for the Bank of England ahead of this month's interest rate decision.
The S&P Global UK Services Purchasing Managers' Index (PMI) fell slightly to 53.9 last month from January's five-month high of 54.0, but was in line with a preliminary reading.
PMI readings above 50.0 indicate growth in activity, while those below that level point to a contraction.
Composite PMI and Manufacturing Sector
The composite PMI, which combines the services survey with growth in the manufacturing sector published on Monday, increased to its highest since August 2024 at was steady in February at 53.7, jointly the highest reading since August 2024.
Labour Market Trends and Cost Pressures
Rising Unemployment and Job Cuts
The readings came a day after finance minister Rachel Reeves announced new economic and budget forecasts to parliament, which showed unemployment is expected to increase further this year - something the PMI underscored.
"February data pointed to a solid reduction in employment numbers, despite a sustained recovery in business activity. Job losses reflected ongoing efforts to focus on boosting productivity and mitigate sharply rising input costs," Tim Moore, economics director at S&P Global Market Intelligence, said.
Input Costs and Wage Increases
"Higher payroll costs were widely cited as leading to a strong pace of overall input cost inflation.
Hiring shrank for the 17th month in a row, according to the composite PMI - the longest unbroken decline since 2010.
Britain's minimum wage rate will rise by 4.1% to 12.71 pounds an hour in April after a 6.7% uplift last year.
Inflation and Price Pressures
Input costs for services firms rose at the slowest pace since November in February, and prices charged by businesses rose at the fastest pace since August.
The BoE, which is expected to keep interest rates at 3.75% this month, is closely watching services price inflation as it considers the pace at which it can reduce borrowing costs.
Investors on Tuesday slashed their bets on BoE interest rate cuts this year as concerns grew that the conflict in the Middle East could fuel inflation.
Business Optimism and Future Outlook
Services business grew less optimistic in February, although some survey respondents noted a positive impact on demand from lower borrowing costs.
(Reporting by Suban Abdulla; Editing by Hugh Lawson)
Key Takeaways
- •February’s UK services PMI slipped slightly to 53.9, still signaling robust expansion, while composite PMI hit its highest level since August 2024 at 53.9. (vtmarkets.com)
- •Employment declined for the 17th straight month as firms grappled with rising input costs and minimum wage hikes, contributing to persistent cost pressures. (pwc.co.uk)
- •The National Living Wage will increase 4.1 % to £12.71/hour from April, and youth rates rise as well—adding to firms’ cost burdens at a time when investment in productivity may be increasingly favoured over hiring. (gov.uk)
References
Frequently Asked Questions about UK economy expands in February but persisting cost pressures pose challenge for BoE
1What was the UK Services PMI in February?
The UK Services PMI in February was 53.9, slightly down from January's 54.0 but still indicating growth.
2How has employment been affected in the UK services sector?
Employment numbers declined for the 17th consecutive month as firms aimed to boost productivity and manage rising input costs.
3What challenges does the Bank of England face according to the article?
Persisting cost pressures and ongoing job cuts present challenges for the Bank of England's interest rate decisions.
4How are rising costs affecting UK services companies?
Higher payroll and input costs lead to sustained input cost inflation and push firms to control hiring.
5Is inflation still a concern in the UK?
Yes, business input costs rose at the slowest pace since November, but prices charged increased at the fastest rate since August, keeping inflation a concern.
