UK price pressures rise despite firms' lacklustre end to 2025, PMI shows

LONDON, Jan 6 (Reuters) - Britain's dominant services sector ended 2025 on a weaker footing than previously thought, according to a closely watched survey that also suggested higher prices could hit consumers as firms passed on rising costs.

The final reading of the S&P Global UK Services Purchasing Managers' Index, published on Tuesday, edged up to 51.4 ?last month from 51.3 in November but was below a provisional December reading of 52.1. The survey adds to a run of weak ?economic indicators before and after finance minister Rachel Reeves' second budget on November 26, which included ?26 billion pounds ($35 billion) in tax increases although the introduction of most ?of them was ?delayed. Britain's economy contracted 0.1% in the three months to October, according to official data, and the Bank of England has estimated that ?it stagnated in the fourth quarter.

"Lacklustre business ?activity growth continued across the UK service sector at the end of 2025," Tim Moore, economics director at S&P Global Market Intelligence, said.

"Meanwhile, inflationary pressures across the ?service economy strengthened at the end of the ?year. Input ?prices rose to the greatest extent for seven months, and output charge inflation rebounded from November's recent low, despite the subdued demand backdrop."

Input costs for services firms rose in December ?at the fastest pace since May, reflecting higher staff costs - which were pushed up by Reeves' first budget - and the costs of raw material and fuel.

Prices charged by firms sped up sharply to rise at their fastest pace since August.

Britain's minimum wage is set to increase by 4.1% at the start of April to 12.71 pounds an hour.

The BoE, which cut interest rates ?last month ?to 3.75%, sees persistently high services price inflation as limiting the pace at which it can cut borrowing costs. Investors are pricing in one or two quarter-point cuts in ?2026.

The PMI survey suggested business optimism was recovering after a period of damaging speculation about Reeves' budget in November. Respondents pointed to an improvement in consumer confidence and more business investment.

Exports increased for the first time since August.

But while new orders rose in December after falling for the first time in four months in November, firms expressed concerns about Britain's economic outlook, rising business costs and weak demand overseas.

Hiring declined for the ?15th month in a row, although the pace of contraction slowed from November. The composite PMI, combining the services sector survey with last week's manufacturing survey which touched a 15-month high, rose to 51.4 from 51.2 in November, although that final ?reading was below the provisional estimate of 52.1.

($1 = 0.7430 pounds) (Reporting by Suban Abdulla; Editing by Hugh Lawson)