February 06, 2026
Growth Without Jobs: Is Automation Reshaping the UK Services Workforce?
Employment in the UK services sector continues to fall, even as wider indicators point to economic expansion, raising questions about whether automation is beginning to reshape the workforce faster than anticipated.
The latest Purchasing Managers’ Index (PMI) data shows employment numbers declined more sharply in January than in December, extending a downward trend that began in October 2024. This marks the longest period of services sector job losses in 16 years.
The Services PMI is a diffusion index based on surveys from firms across the country. Readings above 50 indicate expansion, while figures below that threshold suggest contraction. In January, the index stood at 54, comfortably above 50, signalling that the sector is growing. Yet employment continues to move in the opposite direction. Some believe that automation may be able to help explain this gap.
A Shifting Explanation
Throughout much of last year, falling employment levels were largely attributed to cost pressures and business caution. Again, macroeconomics were a factor. According to the PMI report, “geopolitical uncertainties and fragile consumer demand had weighed on growth in January”, while “subdued household spending” and “lacklustre demand” may have hampered sales in some cases.
However, the most recent data suggests the environment is changing. Despite continued job losses, business confidence has improved. The report notes that “job losses continue, despite improved business optimism”. Service providers also observed an “upturn in clients’ willingness to spend”.
Growth, while modest, has also accelerated. It has been the “second-fastest” since October 2024”, exceeded only by August’s performance. Some firms reported increased sales to European clients, although exporters also pointed to “general economic uncertainty” and “intense competition” in international markets.
In short, demand is rising, optimism is improving, and output is growing, yet headcount continues to shrink.
The Automation Question
One explanation emerging from the data is automation-driven workforce reduction. The PMI report cites anecdotal evidence suggesting that firms are choosing not to replace departing staff due to “squeezed margins, fragile market conditions and efforts to boost productivity through automation”.
Although anecdotal, this sheds light on the growing disconnect between sector performance and employment trends. If demand and output are rising, automation offers a clear mechanism for sustaining growth without expanding headcount, while allowing firms to do more with fewer people.
That said, caution is required when interpreting PMI employment data. The index reflects the number of firms cutting staff or reducing hiring, rather than the precise scale of job losses, Rob Wood, Chief UK Economist at Pantheon Macroeconomics was reported as saying.
Automation Becomes Competition
The extent to which automation is reshaping employment remains difficult to quantify, but its influence is becoming increasingly hard to dismiss. The new technology is often framed as performing a supporting role. While this may be true, emerging evidence suggests that its overall productivity input is having an effect on demand for human labour.
Adoption is accelerating across businesses. A YouGov poll last year found that 31% of SMEs are now using AI and 54% are already automating tasks that were previously performed by people. From a CX-perspective, Medallia estimates 90% of CX practitioners are already using generative AI. Public concern is reflecting these changes, with 34% of respondents seeing AI as a direct threat to jobs.
Microsoft has already cut thousands of roles as it repositioned its workforce around AI capabilities. Forecasts also point to significant longer-term disruption. Last month, for example, Forrester predicted that AI could displace 10.4 million jobs in the US by 2030.
While the precise drivers behind the UK services sector’s employment decline remain uncertain, it is no longer credible to treat automation solely as a neutral efficiency aid. The evidence increasingly suggests it is also a competitive force in the labour market and one that is already reshaping how growth and employment coexist.
