UK Services Sector Sees Steepest Contraction Since 2023 Amid Iran Conflict
UK Services Sector Activity and Economic Impact
Recent Performance and Survey Data
LONDON, July 3 (Reuters) - Activity in Britain's dominant services sector contracted for a second month running in June and by the most since early 2023 as the fallout from the Iran war continued to weigh on companies, a closely watched survey showed on Friday.
The S&P Global Purchasing Managers' Index for the services sector in June fell to 48.8 from May's 49.3, representing the second fall in a row in activity and the weakest since January 2023.
Friday's reading was slightly stronger than a preliminary flash estimate of 48.7. A reading below 50 signals contraction.
Factors Contributing to Contraction
Overall new work contracted at the fastest pace since November 2022, with companies citing concerns about who would replace Prime Minister Keir Starmer and their fiscal policies, as well as global inflationary pressures.
The survey added to signs of a slowdown ahead of former Greater Manchester mayor Andy Burnham's likely installation as prime minister.
Expert Commentary
"June data confirmed a clear loss of momentum for the UK economy during the second quarter of 2026, following a positive start to the year," Tim Moore, economics director at S&P Global Market Intelligence, said.
"Strong cost pressures, lacklustre demand and business uncertainties arising from the Middle East conflict were the most prominent themes highlighted by service sector firms in June."
Inflation and Cost Pressures
There were signs that inflation pressures eased slightly, although they remained strong. The PMI's gauge of input cost inflation fell in June to its weakest since March. Businesses said higher input costs were partly due to rising salaries and transport costs.
While firms continued to pass on their costs to customers, the increase was at the softest pace since February.
Composite PMI and Business Sentiment
The composite PMI, which includes Wednesday's manufacturing data, was revised down to 49.3 from a preliminary reading of 49.4, the weakest since April 2025 and down from 49.7 in May.
S&P said business sentiment about the coming 12 months was the second-lowest since April 2025, but firms turned slightly more optimistic on hopes of a peace deal between the United States and Iran and investment in artificial intelligence.
Labour Market Trends
Hiring contracted for the 21st consecutive month, the longest continuous period of job shedding since February 2010.
(Reporting by Suban Abdulla; Editing by Toby Chopra)
