UK economy faces contraction as private sector activity hits 14-month low

Britain’s private sector activity has plummeted to its weakest level in 14 months, driven by "sustained weakness" within the crucial services industry, according to new figures.

This downturn comes as businesses continue to raise prices, reacting to persistent cost pressures stemming from the Middle East conflict and government policy.

The closely watched S&P Global flash UK composite purchasing managers’ index (PMI) registered a reading of 49.4 for June, a decrease from 49.7 in May.

This marks the lowest level since April 2025. A score above the 50.0 threshold indicates growth, while a reading below this signifies decline. The latest figure fell short of the 50.5 reading anticipated by a consensus of economists, leading experts to suggest the economy may have contracted during the month.

Chris Williamson, chief business economist at S&P Global Market Intelligence, commented: "A disappointing June ‘flash’ PMI indicates that the economy contracted for a second successive month, albeit at only a 0.1 per cent rate and merely flat-lining over the second quarter as a whole."

He added that while current weakness is concentrated in consumer-facing services, an offsetting expansion in manufacturing "could soon falter, as demand here is being temporarily buoyed by the building of safety stocks amid ongoing war-related supply worries."

The report highlighted that the UK’s services sector endured its weakest month in three years, with a PMI reading of 48.7. This downturn was attributed to sharply increasing costs and a drop in customer confidence amid concerns over the Iran war and political uncertainty within the UK.

The struggles in services were partially mitigated by stronger manufacturing output, as surveyed firms noted a "temporary uptick" in demand due to stockpiling products ahead of potential price increases. Nevertheless, manufacturers experienced a softening of new orders, reaching a six-month low.

Although prices paid by businesses moderated slightly over the month, they remained at "elevated" levels. Firms also indicated that prices charged continued to rise in June, though the rate of inflation eased compared with May.

Thomas Pugh, chief economist at RSM UK, stated: "The flash composite PMI weakened further in June, suggesting that the economy has stagnated across Q2."

He added: "Indeed, we doubt growth will pick up much through the rest of the year. Even if a Burnham coronation is likely, avoiding a messy, protracted leadership contest, there will still be speculation about the direction of fiscal policy in the coming months."

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