UK service sector activity slumps in one of sharpest declines for a decade
Summary
UK service companies reported one of the biggest drops in business activity in ten years, with many facing rising costs, supply problems, and job cuts. The sharp fall in activity is linked to political uncertainty in the UK and the impact of the war in the Middle East, and it could slow down the UK’s economy growth.Key Facts
- The UK services sector, which makes up about 80% of the economy, saw its activity fall to the lowest level since July 2016 (excluding the Covid period).
- The S&P Global purchasing managers’ index (PMI) for services dropped from 52.6 in April to 48.5 in May (below 50 means shrinking business activity).
- Private sector jobs decreased for the 20th month in a row, with significant job cuts in the services sector.
- The decline in services overshadowed a small growth in manufacturing, where some companies rushed orders to avoid future price increases.
- The UK inflation rate slowed from 3.3% in March to 2.8% in April, and wages grew more slowly, easing pressure on prices.
- Economists believe the Bank of England may pause interest rate increases due to signs the economy is weakening but not facing runaway inflation.
- Political uncertainty around Prime Minister Keir Starmer’s leadership and the Middle East war increased business uncertainty.
- The decline in the PMI could lead to negative GDP growth in the second quarter, after a small growth in the first quarter.
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