UK services sector contracts at fastest pace since January 2023

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UK services sector contracts 2023

Highlights

UK Services PMI fell to 48.7 in June from 49.3 in May, missing forecasts and marking the fastest sector contraction since January 2023.
New business in the services sector dropped to its lowest since January 2021, while the composite PMI fell to 49.4, signaling broad economic strain.
Oil prices declined below $80 a barrel after an apparent U.S.-Iran truce but remain $10 higher than pre-conflict, sustaining elevated cost pressures.

June PMI signals sharper economic strain

According to Reuters, S&P Global reported that its flash UK Services Purchasing Managers' Index fell to 48.7 in June from 49.3 in May, the weakest reading since January 2023 and below forecasts in a Reuters poll that had expected an improvement to 50.1.

A reading below 50 indicates contraction, and the June survey shows sharp declines in employment and new business. New business falls to its lowest level since January 2021, while the composite PMI, which combines services and manufacturing, slips to 49.4 from 49.7, its lowest point since April 2025.

The manufacturing PMI also indicates slower growth, easing to 53.1 in June from 53.9 in May. Earlier official data show the economy contracts by 0.1% in May, and S&P Global says a similar outcome looks likely in June, which leaves the economy flat for the second quarter after a strong start to 2026.

Political and cost pressures weigh on outlook

The survey is published a day after Prime Minister Keir Starmer says he will quit, highlighting the economic challenges facing Andy Burnham if he becomes the next prime minister without a leadership challenge from another Labour lawmaker.

Stop-start growth, inflation that remains stickier than in other major developed economies, and strained public finances are among the issues weighing on the outlook. S&P Global says only a slight easing in cost pressures offers relief in June, after the war in the Middle East drives a surge in energy prices.

Oil prices fall below $80 a barrel from above $120 earlier in the conflict, after an apparent truce between the U.S. and Iran raises hopes that the Strait of Hormuz remains open. Even so, prices stay around $10 a barrel higher than before the conflict, and S&P Global warns that broader cost pressures remain relatively high.

Chris Williamson, chief business economist at S&P Global Market Intelligence, says higher costs and subdued expectations for growth over the year ahead keep employment falling at a worryingly high rate. He adds that the unstable political environment at home unsettles some businesses and that a period of calm is needed to help revive economic growth.

In our earlier coverage of Brexit’s 10-year economic legacy, we explained how the UK has continued to lag peers with weaker growth, higher inflation, and subdued investment even as the full impact overlaps with pandemic-era disruption. We also highlighted competitive losses in financial services exports and output, alongside ongoing trade frictions and political uncertainty that keep business conditions under pressure.

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