Services industry falters as activity plummets amid Iran conflict fallout
The UK’s services sector’s economic activity and performance declined sharply last month as fallout from the Iran conflict continues to impact businesses, according to new figures.
According to data on the latest business trends from accountancy and advisory firm BDO, a drop in sales and fragile client confidence led to a drop in the services sector‘s economic activity – which includes financial and professional services, retail, hospitality and leisure, and health and education.
The crash, BDO said, is “pushing business output and optimism to new multi-year lows as continued conflict in the Middle East weighed on the UK economy.”
The sharp drop in economic activity last month reached its lowest point since the UK emerged from the country’s third national lockdown in 2021.
BDO said a slowdown and decline in activity in particular in the hospitality, travel, and leisure industries, is “likely due to delayed spending decisions around travel and broader cuts to discretionary spending as the current climate squeezes real wage growth.”
A drop in business confidence, as surveyed by the advisory firm, shows “persistent fragility” for the services sector.
The firm added that this “reflects a gloomy economic outlook as the prospect of rising prices stemming from the Middle East conflict weighs on weak growth and prolonged geopolitical uncertainty.”
This reverses an uptick in economic activity last month, which BDO said may have been due to businesses likely pre-paying for orders as they faced economic uncertainty.
“As expected, the signs of a short-term recovery in April were not a true reflection of the state of the economy,” Scott Knight, head of strategy at BDO said.
“As the impact of ongoing conflicts and domestic uncertainty filters through, businesses, particularly those in the services sector, are bracing for further cost pressures. Hopes for growth are dimming,” Knight said.
BDO data on hiring intentions, headcount, and labour demand, also fell – reaching a new low in 15 years – with the services sector contributing to the decline.
Sharp decline marks Brexit anniversary
June marks 10 years since the Brexit referendum, and in that time, many UK-based businesses have seen a decline in growth with a loss of access to EU-exported goods.
Business confidence has also dropped since the referendum. According to BDO’s analysis, optimism has been in decline for nearly a third of the last decade “as a result of successive shocks”, including the pandemic and the Ukraine war.