24-07-2025
Starmer's economic woes continue as UK firms struggle with rising costs, job cuts
UK private sector growth slowed in July as rising costs, new taxes and global trade tensions hit business confidence. The PMI fell to a two-month low, employment weakened and pressure mounts on the Bank of England ahead of its next rate decision. read more
Private sector activity in the UK weakened in July as firms grappled with rising costs tied to recent budget policies and global uncertainty, prompting many to reduce their workforce.
The S&P Global Flash UK Purchasing Managers' Index (PMI) for composite output—which tracks performance across the manufacturing and services sectors fell to 51 in July, a two-month low. The reading, down from 52 in June, came in below the 51.8 predicted by economists surveyed by Reuters. However, it remained above the neutral 50 level, indicating continued, albeit slower business expansion.
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The survey's employment measure slumped to its lowest point since February, with some businesses pointing to the recent hike in national insurance contributions—announced in the April budget by Finance Minister Rachel Reeves as a contributing factor.
'The persistent drag from fiscal measures on employment is particularly concerning,' said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Additional pressure came from heightened trade tariffs introduced by U.S. President Donald Trump, which further impacted business sentiment.
Meanwhile, a separate poll by the Confederation of British Industry (CBI) suggested the UK's manufacturing sector accounting for roughly 10% of the economy had begun to stabilise following a period of decline. Still, the broader outlook remained shaky, with continued job losses across factories.
The BoE is expected to reduce interest rates for the fifth time in 12 months on August 7 as it focuses on the slowdown in the jobs market, despite inflation rising further above the central bank's 2% target to 3.6% in June.
Thursday's surveys underscored the BoE's dilemma with companies facing price pressures as well as weaker demand.
The PMI showed prices charged by firms speeding up for the first time since April as suppliers sought to offset some of Reeves' tax increase and higher wage bills.
'In our view, the Bank should be more concerned about the ominous state of the jobs market and what it implies for wage growth,' James Smith, an economist with ING, said.
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However, another three-way split on the BoE's Monetary Policy Committee was possible in August similar to May's voting pattern, Smith said.
At that meeting, two members voted for a big half-point rate cut due to their worries about the jobs market, while five backed a smaller quarter-point cut and two said borrowing costs should stay on hold because of inflation risks.
Matt Swannell, chief economic advisor to the EY ITEM Club, a forecasting organisation, said it remained unlikely that the BoE would speed up its rate cuts after August's reduction.
'We're yet to see the sort of deterioration in the official labour market or activity data that could prompt a pivot to faster rate cuts,' Swannell said.
S&P Global's Williamson said the PMI survey suggested Britain's economy was growing at a quarterly pace of just 0.1% with a risk that it could prove weaker.
The PMI for the services sector slipped to 51.2 in July from June's 52.8. The manufacturing sector PMI rose for a fourth month in a row to 48.2 from 47.7 but remained in contraction territory for a 10th consecutive month.
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With inputs from agencies
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