UK services sector contracts further in June as Iran war pressures demand

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Highlights

S&P Global's UK services PMI falls to 48.8 in June from 49.3 in May, the weakest level since January 2023 and signaling continued contraction.
Overall new work declines at the fastest rate since November 2022, driven by political uncertainty, fiscal concerns, and Middle East conflict pressures.
Composite PMI is revised down to 49.3, employment contracts for a 21st consecutive month, while cost inflation eases but remains high.

June PMI points to deeper slowdown

As reported by Reuters, citing S&P Global, its Purchasing Managers' Index for the UK services sector falls to 48.8 in June from 49.3 in May, marking the second consecutive contraction and the weakest reading since January 2023.

The figure is slightly above the preliminary flash estimate of 48.7, but it remains below the 50 threshold that signals contraction. Overall new work declines at the fastest pace since November 2022, with companies citing uncertainty over who might replace Prime Minister Keir Starmer, concerns about fiscal policy and broader global inflation pressures.

Tim Moore, economics director at S&P Global Market Intelligence, says the June data confirms a clear loss of momentum for the UK economy in the second quarter of 2026 after a positive start to the year. He says strong cost pressures, subdued demand and business uncertainty linked to the Middle East conflict are the main themes reported by services firms.

Employment and sentiment remain under pressure

Inflation pressures show some signs of easing in June, although they remain elevated. The survey's measure of input cost inflation falls to its weakest level since March, with businesses pointing to higher salaries and transport costs as key drivers.

Companies continue to pass on higher costs to customers, but the pace of price increases slows to its softest since February. The composite PMI, which includes manufacturing data published earlier, is revised down to 49.3 from a preliminary 49.4, its weakest level since April 2025 and below May's 49.7.

Business sentiment for the next 12 months stands at its second-lowest level since April 2025, although firms become slightly more optimistic on hopes for a peace deal between the U.S. and Iran and increased investment in artificial intelligence. Hiring contracts for a 21st straight month, the longest continuous period of job shedding since February 2010.

Starling Bank’s planned restructuring and job cuts highlighted how UK fintech lenders are adjusting to weaker profitability, falling rate-driven interest income, and the growing use of AI. Our publication noted that the bank aims to simplify operations by removing duplicate roles across banking and technology teams while continuing to invest in its Engine software arm as a route to international growth.

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