UK Services Sector Sees First Contraction Since 2025 Amid Geopolitical Strain
British Services Sector Faces Challenges in May 2026
LONDON, June 3 (Reuters) - British services firms buckled in May as the strains of the Iran war pushed up their costs and hit optimism, a survey showed on Wednesday.
Services Sector Output and PMI Data
The S&P Global Purchasing Managers' Index for Britain's services sector fell to 49.3 from April's 52.7, representing the first fall in output since April 2025, though the reading was stronger than the original flash estimate of 47.9. A reading below 50 signals contraction, while one above 50 signifies growth.
Input Cost Inflation and Contributing Factors
Its gauge of input cost inflation fell slightly in May but was still the second-highest since December 2022, in the aftermath of Russia's full-scale invasion of Ukraine. Businesses said rising energy, fuel and transport costs, as well as salaries, contributed to the surge.
Impact on Firms and Price Increases
While input price inflation cooled from April's high, more than half of firms reported an increase in their average cost burdens last month.
Companies raised prices at the second-fastest rate in three years, only just behind April's increase.
Business Sentiment and Central Bank Response
"Worries about a prolonged spike in inflationary pressures, combined with elevated geopolitical tensions and subdued demand, continued to weigh on business activity expectations in May," said Tim Moore, economics director at S&P Global Market Intelligence.
Bank of England's Interest Rate Outlook
Despite the inflationary warning signal, the Bank of England is unlikely to raise interest rates this month - something that markets had judged a near-certainty after the Middle East conflict started.
Financial markets on Tuesday saw a 90% chance that the BoE will keep borrowing costs at 3.75% at its June 18 announcement.
Employment, Demand, and Composite PMI
S&P said business sentiment about the year ahead slipped to its weakest since last April when it tumbled after U.S. President Donald Trump announced an array of trade tariffs.
Hiring contracted for the 20th month in a row, the longest continuous period of job shedding since early 2010.
Survey respondents reported weaker domestic and overseas demand in May.
The composite PMI, which includes last week's manufacturing data, was revised up to 49.7 from a preliminary reading of 48.5 and down from 52.6 in April.
(Reporting by Suban Abdulla; Editing by Hugh Lawson)
