Momentum waned in June, with firms reportedly reluctant to commit to new spending and projects before Thursday’s election
The UK’s services sector saw a slowdown in growth last month, as businesses hit the pause button on plans ahead of the General Election, according to a recent survey.
The S&P Global UK services PMI survey for June scored 52.1, a slight dip from May’s 52.9. This indicates that while the sector is still growing, it’s doing so at a slower pace than previous months.
The headline score, closely monitored by economists, exceeded expectations but was the lowest since November of the previous year. A score above 50.0 signifies an increase in activity, which has been the case for eight consecutive months. However, momentum waned in June, with firms reportedly reluctant to commit to new spending and projects before Thursday’s election.
Joe Hayes, principal economist at S&P Global Market Intelligence, commented: “We are seeing some evidence of a pre-General Election seize-up across the UK services economy, with growth in business activity slowing to a seven-month low in June as the prospect of a change in government led to the adoption of a ‘wait-and-see’ approach by some, restraining sales.”
The survey suggested that some companies were holding off on placing orders and commissioning new projects until they had a clearer picture of the incoming government. The vast services sector, which makes up about 80% of the country’s total economic output, also accounts for its employment.
The PMI survey, covering sectors such as hospitality, entertainment and culture, finance and insurance, as well as real estate and business services, highlighted some intriguing economic trends. From April to June, the research found an average score of 53.3, a small drop from the 53.7 recorded from January to March, according to Mr Hayes.
He indicated that, according to these figures, the nation is “on track for another quarter of GDP (gross domestic product) growth”, but it might lack the same impact as the first quarter’s growth.
Official numbers put the economic growth at 0.7% in the first three months of the year, thus ending the brief recession experienced towards the end of 2023. A noteworthy finding of the survey was a slight acceleration in sales growth from overseas customers, especially customers based in North America and Europe.
“Prices still continue to show a high degree of stickiness across the UK service sector, although input cost inflation once again trended lower in June,” noted Mr Hayes.
However, there could be cause for concern as he pointed out signs that businesses are increasing their prices due to better economic conditions. This will certainly be a key consideration for Bank of England policymakers when deciding on interest rates.
Currently, policymakers are keen to ensure inflation maintains its target level before contemplating any rate cuts. The current stand point for these rates is 5.25%.
