UK Services Sector Growth Cools to Six-Month Low Ahead of General Election
The UK’s services sector, considered to be the country’s powerhouse, has experienced a significant slowdown, according to a closely-watched survey of businesses. As the country gears up for a general election that is expected to heavily focus on the economy, the S&P Global UK Composite Purchasing Managers’ Index (PMI) has reported a decrease in the pace of business activity.
The May index, which measures growth with any number above 50, recorded a score of 52.8, lower than the 54.1 achieved in April. Economists had predicted a much smaller decrease from the previous month. The survey, which includes responses from both services and manufacturing companies, also showed a recovery in factory activity, which saw its best monthly performance in two years. However, this was offset by a weakening in the services sector, attributed to a slowdown in new orders.
According to the report, the data collected from the survey is consistent with a projected 0.3% increase in gross domestic product (GDP) for the second quarter of the year, ending in June. This is lower than the 0.6% growth estimated by the Office for National Statistics for the first quarter. However, it is in line with annual forecasts from the Bank of England and the International Monetary Fund.
The UK economy recently emerged from a six-month recession, which was largely attributed to interest rate rises by the Bank of England in an effort to control inflation. While the official rate of inflation is slightly above its target of 2%, April’s figure was higher than expected. This has led to financial markets shifting their predictions for a first interest rate cut from June to August.
The announcement of a general election on July 4th means that the ruling Conservative party, led by Rishi Sunak, will not benefit from any potential boost in borrowing costs prior to the election. The PMI survey also suggests that the Bank of England’s concerns about inflation may be alleviated by the findings.
Speaking about the survey results, chief business economist at S&P Global Market Intelligence, Chris Williamson, stated that the slowest price growth in over three years and falling headline inflation support the view that the Bank will begin cutting interest rates in August, provided that data continues to move in the right direction over the summer. He also noted that the speculation of rate cuts has already led to improved business confidence, as optimism for the year ahead increased in May. This has raised hopes that the battle against inflation can be won without the UK experiencing a serious recession.
As the general election campaign gains momentum, the state of the economy is expected to be a key battleground for all political parties. Follow our live coverage for updates and reactions to the campaign.
