UK Services Activity Shows Weakest Performance in Over a Year
Aisha Mensah | AA
The UK services sector has contracted for two consecutive months, recording its weakest performance since January 2023, due to domestic economic challenges and client risk aversion.
The UK services sector has continued its downward trajectory, contracting further in June, as revealed by S&P Global data. The Services PMI Business Activity Index fell to 48.8 in June from 49.3 in May, marking its weakest performance since January 2023. This dip keeps the index below the crucial 50-point threshold that indicates growth.
Service providers have blamed the ongoing contraction on weak domestic economic conditions and heightened client risk aversion. Geopolitical uncertainty, especially concerning the Middle East, has also played a role, affecting market confidence and leading to cautious behavior among businesses.
The report notes a decline in new work for the fourth successive month, with this month showing the fastest rate of contraction since November 2022. This trend is mirrored in the export orders, which have also seen a significant decrease, particularly from European clients.
Declining Employment and Rising Costs
The services sector is also seeing a marked reduction in employment, which has been continuing at its sharpest rate since February. Companies are opting to make redundancies or not replace employees who leave voluntarily, as business needs weaken and pressure on profit margins increases.
Input costs, although easing from a previous peak, remain high. The reduction has been attributed to lowered inflation on items such as wages and transport bills. Nevertheless, costs continue to be a significant burden due to persistent high prices in technology and labor.
Despite these pressures, the increase in prices charged by service firms has slowed to its lowest pace since February, indicative of competition and subdued demand impacting pricing power.
Impact of External Events on Business Climate
The recent contraction in the services sector was also affected by unforeseen events such as the late-June heatwave, which led to reduced footfall for consumer-facing firms. Conversely, some hospitality businesses experienced a boost due to activities related to the ongoing 2026 FIFA World Cup.
Tim Moore, economics director at S&P Global Market Intelligence, commented that the June data points to a 'clear loss of momentum' for the UK economy in the second quarter of 2026.
The broader private sector is not immune, as indicated by the PMI Composite Output Index's drop to 49.3 in June from 49.7 in May. This reflects a marginal decline in activity for the second month in succession, underscoring widespread economic challenges.
How Cities Might Adapt to Economic Shifts
For urban leaders, these economic signals underscore the need to bolster local economies through innovation in service delivery and community engagement. Cities can mitigate some of the contraction through investments in technology and infrastructure that support business activities and workforce development.
Additionally, mayors and city councils have a role in fostering resilience against geopolitical uncertainties by creating partnerships with international markets outside of Europe, including increased engagement with US businesses, which have shown stronger demand.
Understanding and anticipating the shifts in economic trends, such as those reflected in the latest PMI data, are crucial for municipalities to devise strategies that protect and promote sustainable economic growth.
Questions That Matter
What did the UK services PMI reveal for June?
The S&P Global UK Services PMI fell to 48.8 in June from 49.3 in May, marking its weakest performance since January 2023 and indicating contraction for the second consecutive month.
What factors influenced UK services activity in June?
UK services activity in June was influenced by weak domestic economic conditions, geopolitical uncertainties linked to the Middle East, reduced footfall due to a heatwave, and strong demand from US clients.