The UK services PMI June final reading came in at 48.8, the weakest service sector performance since January 2023, as new orders fell for the fourth consecutive month and political uncertainty clouded the outlook.
The reading edged above a flash estimate of 48.7, according to Newsquawk, but fell from 49.3 in May and remained below the 50.0 threshold that separates contraction from growth.
New Orders and Jobs Fall as Cost Pressures Persist
‘Strong cost pressures, lacklustre demand and business uncertainties arising from the Middle East conflict were the most prominent themes highlighted by service sector firms in June,’ said Tim Moore, Economics Director at S&P Global Market Intelligence.
Moore said those factors had produced ‘fragile investment sentiment’ and ‘elevated risk aversion’ while consumers faced ‘squeezed consumer budgets.’
Input cost inflation eased to its lowest level since March, the S&P Global press release said, yet businesses reported that intense competition and subdued demand were limiting their ability to pass on higher costs.
Job losses across the sector accelerated, falling at the sharpest pace since February. A late-June heatwave dented footfall for some consumer-facing firms, the report noted, although hospitality operators recorded a lift from the FIFA World Cup.
Business optimism improved marginally from May but remained, in Moore’s words, ‘much softer’ than at the start of the year. He attributed the modest uptick in confidence to ‘hopes of a durable US-Iran ceasefire agreement and positivity towards business development plans,’ adding that ‘many firms noted worries about broader UK economic prospect.’
UK Services PMI June Comes Against a Backdrop of Political Flux
The PMI data lands as UK businesses brace for a change of leadership at Downing Street. Andy Burnham is set to succeed Sir Keir Starmer in the coming weeks, and one of his first tasks will be finding £4.7bn to fund the outgoing Prime Minister’s defence investment plan.
In an interview with LBC, Burnham backed Labour’s manifesto commitments not to raise income tax, VAT or national insurance, but said he would not make ‘crude cuts to benefits,’ leaving open the question of how he intends to fund defence and other spending commitments.
Burnham has indicated he would look to increase business rates on warehouses to fund relief for high street bars, restaurants, coffee shops and hairdressers. He also said he had ‘deliberately’ held off appointing a Chancellor in order to ‘set out a new direction for the country.’
Thomas Pugh, Chief Economist at RSM UK, said the firm doubts ‘growth will pick up much through the rest of the year.’ Pugh added: ‘Even if a Burnham coronation is likely, avoiding a protracted leadership contest, there will still be speculation about the direction of fiscal policy in the coming months.’
The fiscal picture Burnham inherits will shape whether services firms revise their cautious stance on hiring and investment. Any clarity on the new Chancellor and the scope of the autumn spending round will be the first test of whether the sector’s anaemic confidence can recover.
