UK economy sees fastest services orders slowdown since Liz Truss
Hopes of a quick recovery to the UK economy are fading as orders in the services sector fell at the fastest rate since Liz Truss’ mini-budget in late 2022, fresh data has suggested.
S&P Global’s latest composite purchasing managers’ index (PMI) showed a fall from a score of 52 in June to 51.5, which remains slightly above the 50-figure benchmark showing neutrality in output.
The figure was a slight upgrade on an earlier “flash” reading posted by S&P Global.
In concerning signs for the state of the UK economy, new orders fell at the fastest rate in nearly three years, with respondents in S&P Global’s survey of 650 service sector companies suggesting clients were less confident about the global economy and their own business prospects.
Pantheon Macroeconomics’ Rob Wood and Elliott Jordan-Doak suggested this slowdown “points to deterioration ahead” though other surveys indicated orders could rebound.
Total workforce numbers across the services sector also decreased to the greatest extent since February in a further indication that the UK jobs market is hamstrung by Rachel Reeves’ high taxes and tight monetary policy.
The UK’s service sector constitutes about 80 per cent of the country’s total gross value added (GVA), reflecting its dominance over manufacturing and other industries.
Services firm bosses said worries of higher payroll costs were holding back recruitment.
UK economy holds out for interest rate cut
Respondents also said they would hike the prices of their products at a higher level to pass on the impact of higher labour costs onto consumers, though input price inflation had slowed to its lowest level so far this year.
Looking to the year ahead, optimism slightly improved on the month given fears of high tariffs had eased slightly and looming interest rate cuts could boost consumer spending.
Matt Swannell, chief economic adviser to the EY ITEM Club, said the “more modest pace” of growth in the UK’s services sector showed the UK economy’s growth rate was “sluggish and is expected to remain that way”.
“With the Monetary Policy Committee balancing signs of fragility in the labour market against evidence of lingering inflationary pressure, the committee will likely signal that further gradual interest rate cuts remain appropriate.”
Swannell added that the month-to-month results can be erratic and was generally a “poor predictor” of official output.