UK service sector growth better than expected in June

Growth in the UK services sector was stronger than expected in June, according to a survey released on Tuesday.

The S&P Global/CIPS purchasing managers’ index for the sector rose to 54.3 from 53.4 in May, beating expectations and the flash estimate of no change. It was also above the 50.0 mark that separates contraction from expansion for the sixth month in a row.

However, the survey also showed that new order growth declined to a 16-month low in June as economic uncertainty and rising inflation hit discretionary spending.

Meanwhile, the composite PMI - which measures activity in services and manufacturing - pushed up to 53.7 in June from 53.1 in May. However, this marked the second-weakest reading so far this year. A slowdown in manufacturing production growth to its lowest since May 2020 was offset by a modest acceleration in service sector activity.

Tim Moore, economics director at IHS Markit, said: "The service sector remained in expansion mode during June, but persistently high inflation has started to dent discretionary spending and negatively influence demand projections across the board. New order growth was the weakest since the national lockdown in early-2021, with survey respondents reporting business and consumer hesitancy in response to the uncertain economic outlook.

"June data highlighted the second-fastest rise in input prices since the survey began 26 years ago, driven by intense wage pressures and rapid increases in fuel costs. Staff shortages added to demand and supply imbalances, with subsequent constraints on business capacity acting as a further incentive to defend margins from escalating operating expenses. Around 37% of the survey panel reported an increase in their charges since May and many commented on plans to push through further price rises in the second half of 2022."