Services sector lifts 'sluggish' UK business activity in May

Daily Mail​

3 hours ago

British business activity showed cautious signs of strength again last month, as growth in the country's dominant services sector offset continued manufacturing weakness.
The closely-watched S&P Global UK Composite Purchasing Managers' Index stayed above the 50 threshold denoting growth, strengthening from 50.3 to 50.7 in May and beating economists' forecasts for a reading of 50.5.
The services sector saw its fastest growth in three months, while factory activity fell for a ninth consecutive month running - although the sector also suffered its smallest contraction since January.
But S&P's survey, which was conducted from 12 June, the day before initial Israeli strikes on Iran, until 19 June, saw its measures of employment, new export business and future output all worsen.
The group cited heightened geopolitical uncertainty, but also Chancellor Rachel Reeves' hikes to the national living wage and employer national insurance contributions from April.
It follows separate data from the Office for National Statistics earlier this month that showed GDP contracted in April, unemployment is growing and the consumer price index remains above the Bank of England's 2 per cent target at 3.5 per cent.
However, in positive news for consumers and the BoE, S&P selling prices increased at the slowest pace since January 2021 in May.
S&P said its findings were consistent with economic growth of around 0.1 per cent in the April to June period, matching the BoE's estimate of the current underlying pace of the economy's expansion.
Chief business economist for S&P Global Market Intelligence, Chris Williamson, said the UK economy remains in a 'sluggish state', and described business activity as 'disappointingly lacklustre' despite the slight improvement.
But Rhys Herbert, senior economist at Lloyds Bank, said a second consecutive month of improvement 'demonstrates the resilience of the UK economy' and the performance of the services sector was a 'potential reason for cautious optimism'.
He added: 'Companies will be hoping that signs of a possible rebound in business and consumer confidence will translate into a rise in spending.'
Thomas Pugh, chief economist at RSM UK, said the data strengthens expectations that the BoE will cut base rate from 4.25 to 4 per cent in August, ahead of another 25 basis point reduction later in the year.
He added: 'The PMIs suggest that the biggest hit to the economy was in April and things are now starting to recover.
'That said, the subdued level of the PMIs is still pointing to near stagnation.
'Growth is likely to be bumpy this year, and the economy will still be facing the headwinds of tariffs, uncertainty and taxes that it didn't have in Q1. That means Q1 probably marked the highpoint for the year.'