Private sector growth is at a seven-month low as elections halt spending

The UK’s private sector grew at its slowest pace in seven months in June as inflation in goods and services remained persistently high and businesses held off on spending decisions until the general election.

The S&P Global/CIPS flash UK composite purchasing managers’ index (PMI) recorded a reading of 51.7 in June, up from 53 in May. The data is based on preliminary data.

Any score below 50 means activity is decreasing, and any score above means it is increasing.

The UK’s services sector dragged down the rest of the private sector as growth slowed for the second month in a row, reaching a reading of 51.2 in June.

Companies said higher customer demand helped drive activity but was not enough to counter the election-related spending pause.

Growth in the manufacturing sector, which accounts for less than 10% of UK economic output, was stronger, with output rising to 54.2, a 26-month high.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said companies have suspended decision-making until the general election.

“Meanwhile, from an inflation perspective, the survey clearly shows persistent service sector inflation – a major barrier to lower interest rates – but should at least cool further from the current pace of 5.7% in the coming months,” he said .

“However, business costs are rising, especially in the manufacturing sector, where shipping costs in particular are rising again sharply, contributing to renewed inflationary pressures from commodities.”

This came after the Bank of England left interest rates unchanged at 5.25% on Thursday, even though the headline inflation rate reached the Bank’s 2% target in May for the first time in almost three years.

However, inflationary pressures have intensified, with input price inflation rising from a 40-month low in May. Input prices also saw their sharpest rise in 17 months, with companies commenting on higher prices for goods such as metals and paper.

Wages remain the main driver of service cost inflation, although transportation and software costs were also widely cited by respondents.

Williamson added: “In short, while the slowdown in economic growth may prove temporary if businesses respond positively to the policies announced by any new government, the persistence of underlying inflation pressures above the Bank of England’s target still looks somewhat entrenched.”