Election uncertainty curbs activity in services sector

Wednesday 03 July 2024 10:36 am

Despite the decline, the final PMI for June was higher than the 51.2 recorded in the preliminary estimate.

Election uncertainty weighed on business activity in the services sector last month, although the sector performed better than originally expected, a closely watched survey showed.

S&P’s Purchasing Managers’ Index (PMI) for the services sector fell to 52.1 in June, a seven-month low, from 52.9 in May. PMIs measure business activity in the private sector, with anything above 50 indicating expansion.

Despite the decline, the final PMI for June was higher than the 51.2 reported in the preliminary estimate and confirms that the services sector remains in expansion territory for an eighth straight month.

The survey found that companies have adopted a “wait and see” attitude before placing new orders and commissioning new projects due to the elections.

The slowdown in new orders was particularly acute in the domestic market, with the survey pointing to a “slight recovery” in demand from overseas customers.

Businesses remained optimistic, with 48% of respondents predicting growth next year. An improving economy, lower interest rates and stronger demand will boost activity levels, the companies said.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the PMI would likely “bounce back” after the election.

The upward revision took the PMI, which covers both the manufacturing and services sectors, to 52.3, down from the original estimate of 51.7.

For the second quarter as a whole, the PMI averaged 53.3, only slightly slower than the first quarter, when it averaged 53.7. It showed the economy saw only a “modest loss of momentum.”

The news on inflation was mixed, with service sector input price inflation falling to its lowest level since February 2021, despite continued high wage bills.

But that was not enough to prevent prices rising at a slightly faster pace than in June, and inflation rose from a 37-month low reached in May.

“UK services sector prices continue to show a high degree of stickiness, although input cost inflation returned to a downward trend in June,” said Joe Hayes, chief economist at S&P Global Market Intelligence.

“The direction of change is encouraging for the Bank of England, but the price charged indicator in our study actually rose over the month as some firms saw their pricing power was strong enough to raise their fees,” Hayes added.