Election uncertainty weighs on UK service sector - PMI

The pace of growth in the UK service sector softened in June, a closely-watched survey showed on Wednesday, weighed down by the forthcoming general election.

The seasonally-adjusted S&P Global UK services PMI business activity index was 52.1 in June, the eighth consecutive monthly increase in output.

However, it was down on May’s reading of 52.9, and the softest rate of growth since November.

Respondents said clients were waiting until after 4 July to place orders or commission new projects. New business intakes rose at a historically subdued pace, while the pace of job creation also cooled.

The UK PMI composite output index, a weighted average of both the services and manufacturing indices, was 52.3, slipping from 53.0 in May.

A balance above indicates growth, while one below it suggests contraction.

Joe Hayes, principal economist at S&P Global Market Intelligence, said: "We are seeing some evidence of a pre-general election seize up across the UK services economy, with growth in business activity slowing to a seven-month low in June.

"Nevertheless, we’re on track for another quarter of GDP growth, according to the composite PMI data…albeit one that will be less punchy than the first quarter’s 0.7%.

"The recovery of the UK economy from its late 2023 lull adds another dynamic for policymakers to consider, should strong economic conditions motivate more companies to raise their prices."

Peter Arnold, UK chief economist at EY, said: "The read across from the composite PMI to GDP has been quite patchy over the past couple of years, partly due to the degree of volatility in sectors that aren’t part of the survey.

"The EY Item Club expects the second quarter to prove a case in point, with GDP growth lily to have softened slightly between the first and second quarter.

"[We] doubt these results will have much bearing on the MPC’s thinking. [We] expect the first rate cut to come at next months’ meeting."