UK services sector in ‘fragile recovery’ as employment fears linger
The UK services sector expanded in June, despite tax hikes and a drop in employment across the UK economy, new figures have suggested.
The double whammy of President Trump’s tariffs and Chancellor Reeves’ tax increases in April lowered confidence levels among businesses, with official data showing the UK economy contracted by as much as 0.3 per cent in one month.
But economists may find some comfort in S&P Global’s latest flash purchasing managers’ index (PMI) as firms demonstrate a degree of resilience.
Researchers at S&P Global revealed business activity hit a three-month high in June while the flash composite index increased to 50.7 from 50.3 in May, which is above the 50-figure benchmark for no change in output.
Service providers reported they are taking on more clients, which represented the first monthly rise since last November, while companies also said prices rose at their slowest pace in more than four years.
Around 1,300 manufacturers and service providers said growth in orders generally came domestically as total new work from abroad decreased for the eighth consecutive month, reflecting the post-Liberation Day slump in demand and doubts over global trade.
But in a more concerning sign for the UK economy, the private sector has continued to lay off staff and refrain from hiring more staff as employment fell at a faster pace than in May.
‘Lacklustre’ figures
S&P Global suggested employment had now declined for nine months in a row.
S&P Global economist Chris Williamson said UK growth data remained “disappointingly lacklustre”, with GDP in the second quarter now projected to rise by just 0.1 per cent.
“Business confidence also remains in the doldrums compared to this time last year, losing ground again in June,” Williamson said.
“On top of concerns over the impact of recent government policies and worries over global trade protectionism, June’s data collection coincided with increased tensions in the Middle East.
“Employment has hence continued to be cut as firms grapple with the combination of higher staffing costs, linked to last autumn’s Budget, lower demand and subdued confidence.”
Growth path at risk of getting de-railed
Pantheon Macroeconomics’ Elliott Jordan-Doak said new flash data suggested firms were turning a corner and driving growth after a tough start to the second quarter of the year.
“The PMI suggests that business confidence is staging a fragile recovery after being battered by tariff threats and tax increases,” Jordan-Doak said.
“That said, rising geopolitical stress is likely to be added to the growing list of worries facing businesses.
“The manufacturing sector is particularly vulnerable to geopolitical stress because of its sensitivity to oil prices.”