UK service sector loses momentum

The recovery in the UK service sector lost momentum in June, a closely-watched survey showed on Wednesday, as rising interest rates weighed on demand.

The latest S&P Global/CIPS UK services PMI business activity index came in at 53.7, still indicating growth but down on May’s 55.2. It was in line with both the flash estimate and consensus.

A reading above the neutral 50.0 level indicates growth, while one below suggests contraction.

The survey showed that staffing levels were continuing to grow, with job creation reaching a nine-month high, while input cost inflation eased to its lowest since May 2021.

But while volumes of new work were ahead moderately, the rate of growth was the slowest since February, when the current period of expansion begun.

And while respondents found business and consumer spending remained generally resilient, rising interest rates meant there was weaker demand from real estate and construction clients.

The composite PMI – a weighted average of the services and manufacturing indices – was 52.8 in June, down from 54.0 in May and in line with expectations.

Tim Moore, economics director at S&P Global Market Intelligence, said: “The service sector showed renewed signs of fragility in June, as rising interest rates and concerns about the UK economic outlook took their toll on customer demand.

“Business activity increased at the slowest pace for three months, while the rate of new order growth eased further from April’s recent peak.”

John Glen, chief economist at the Chartered Institute of Procurement and Supply, said: “Concerns that the engine of growth in the UK economy could be showing signs of slowdown were realised last month.

“Though the sector remained in expansion mode, customer appetite to spend had decreased with concerns over interest rates and cost of living rises affecting household budgets.

“With the UK economy still a hair’s breadth away from recession, companies will be making modest plans for future business this year rather than the highs experienced in the last few months.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The recovery in services output lost a little momentum in June, but it is still holding up well in the face of rising interest rates.

“The composite PMI is consistent with quarter-on-quarter growth in GDP in the second quarter of around 0.3%, though we think a slightly weaker outturn is more likely give that the composite PMI excludes the struggling construction and public sectors.”

The surveys were carried out between 12 and 28 June.