In February, the British economy expanded modestly: the service sector PMI remained in expansion territory, while wage hikes pushed inflation, becoming an obstacle to central bank interest rate cuts.

A survey released on Wednesday showed that the UK service sector achieved steady growth in February, but job cuts and price pressures remained persistent, which could become a major concern for the Bank of England before this month's interest rate decision. The S&P Global UK Services Purchasing Managers' Index (PMI) recorded 53.9 in February, slightly down from the five-month high of 54.0 in January, remaining unchanged from the flash estimate. A PMI reading above 50 indicates expansion in the industry, while below 50 points to contraction. Combining the services sector with the manufacturing data released on Monday, the composite PMI remained steady at 53.7 in February, the same level as in August 2024, reaching the highest level since then. The day before this data was released, UK Chancellor Rishi Sunak had just presented new economic and budget forecasts to Parliament, showing that the unemployment rate is expected to further rise this year - a point that was confirmed in the PMI data. Tim Moore, Director of Economics at S&P Global Market Intelligence, stated, "The February data show that despite continued recovery in business activity, employment numbers continue to show significant reductions. Layoffs reflect companies continuing to focus on increasing productivity and mitigating the sharp rise in input costs." He added, "Rising wage costs are widely seen as a major driver of overall cost inflation." The composite PMI shows that UK employment has contracted for 17 consecutive months, marking the longest continuous decline since 2010. Following a 6.7% increase last year, the UK's minimum wage will increase by another 4.1% in April to 12.71 per hour. Despite input cost inflation in the service sector in February being the slowest since November last year, businesses saw the largest increase in charging prices since August. It is widely expected that the Bank of England will keep the interest rate unchanged at 3.75% this month, with policymakers closely monitoring service sector price inflation to assess the pace of future rate cuts. On Tuesday, investors significantly reduced their bets on a rate cut by the Bank of England this year due to concerns that the Middle East conflict could further push up inflation. The survey showed that while some surveyed businesses noted the positive impact of lower borrowing costs on demand, optimism among service sector businesses about business prospects in February has cooled slightly.