‘Pre-election takeover’ slows service sector growth – study

Growth in the UK’s services sector slowed last month as a “pre-general election shutdown” prompted businesses to put general election plans on hold, according to a new survey.

The S&P Global UK Services PMI survey came in at 52.1 in June, down slightly from 52.9 in May.

This means that activity in this sector is still growing, albeit at a slower pace than in previous months.

The headline figure, which is closely watched by economists, was higher than economists expected but was the lowest since November last year.

Any score above 50.0 indicates that activity in the sector is continuing to grow – and has been so for eight months in a row.

However, momentum weakened in June, with businesses reportedly hesitant to invest in new spending and projects ahead of Thursday’s UK election.

Joe Hayes, chief economist at S&P Global Market Intelligence, said: “We are seeing some evidence of a drag on UK services activity ahead of the general election, with growth in business activity slowing to a seven-month low in June as the prospect of a change of government led to a ‘wait and see’ approach from some, which held back sales.”

The survey found that some companies would like to know what the new government will look like before they start placing orders and commissioning new projects.

The extensive services sector accounts for about 80% of the country’s total economic product and employment.

The PMI survey covers the following industries: hospitality, entertainment and culture, finance and insurance, real estate and business services.

The latest version of the survey also showed the average score for the April to June period was 53.3, only slightly down from the 53.7 recorded for the January to March period.

Mr Hayes said the data showed the country was “well on track to deliver another quarter of GDP (gross domestic product) growth”, although it would be “less robust” than in the first quarter.

The economy grew by 0.7% in the first three months of the year, according to official data, emerging from a brief recession it entered in late 2023.

Meanwhile, the survey showed a slight increase in sales to international customers, especially in North America and Europe.

“Prices across the UK services sector continue to show a high degree of stickiness, although input cost inflation was back on a downward trend in June,” Mr Hayes said.

But he added that evidence that a better economy was motivating companies to raise prices could be a cause for concern for Bank of England policymakers when setting interest rates.

They stressed they wanted to ensure inflation stayed at target levels before lowering interest rates, which currently stand at 5.25%.