Hospitality Faces Job Losses Despite Service Sector Growth

The hospitality and leisure sector is facing “challenging business conditions” as new data reveals that service sector employment has now fallen for four consecutive months – the longest period of job cuts in 16 years.

According to the latest S&P Global UK Services PMI employment numbers across the service economy decreased at an accelerated rate in January 2026, despite the sector showing robust business activity growth.

The survey highlighted that hospitality and leisure businesses are among those most affected by the staffing reductions, with firms citing squeezed profit margins and fragile market conditions as key reasons for not replacing workers who leave voluntarily.

Higher payroll costs emerged as the primary factor driving the employment cuts. Service sector businesses reported sharp increases in wage bills following recent Budget measures, forcing many to look at automation and productivity improvements as alternatives to maintaining current staffing levels.

The employment decline stands in stark contrast to the broader service sector performance, which saw business activity expand at its fastest pace in five months. The Services PMI Business Activity Index registered 54.0 in January, up from 51.4 in December.

However, the report specifically noted widespread concerns about subdued consumer spending power, which has particularly impacted hospitality operators. Several firms reported that household disposable incomes remain under pressure, constraining customer demand in the on-trade.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented:
“Despite a recovery in total new work, service providers still reported that consumer demand was constrained by squeezed disposable incomes, while risk aversion in response to geopolitical tensions was a factor holding back business spending.”

The data also revealed that input costs continued to rise sharply, with businesses citing higher food prices and raw material costs alongside increased payroll expenses. In response, many operators have been forced to raise prices, with output charges increasing at the fastest rate since August 2025.

Looking ahead, the survey found mixed sentiment in the sector. While some firms expressed hopes for a boost to customer spending from lower borrowing costs and increased construction activity, many hospitality businesses remain cautious about their prospects given ongoing cost pressures and uncertain consumer confidence.

The findings come as the sector continues to grapple with the aftermath of recent Budget changes, including adjustments to National Insurance contributions and the National Living Wage, which have significantly impacted labour-intensive hospitality businesses.

With employment falling since October 2024, the data suggests the sector is facing its most prolonged period of workforce reduction since the financial crisis, raising concerns about capacity constraints should trading conditions improve.