‘Pre-General Election seize-up’ sees services sector growth slow – survey

A closely-watched survey suggests the level of activity in the sector slowed in June, compared to May.

Output in the north's business services and finance sub-sector grew by 4% in the third quarter, leaving it 11% higher than a year earlier. (Daenin Arnee/Getty Images/iStockphoto)

Growth in the UK’s services sector eased last month, as a “pre-General Election seize-up” led businesses to put plans on ice before the nation heads to the polls, according to a new survey.

The S&P Global UK services PMI survey scored 52.1 in June, down slightly from 52.9 in May.

It means that activity in the sector is still growing, but at a slower rate than it has in previous months.

The headline score, which is watched closely by economists, came in higher than economists’ expectations but was the lowest level since November last year.

Any score above the 50.0 threshold means activity in the sector is still increasing – which it has been for eight months in a row.

But momentum was lost in June, with businesses reportedly hesitant to commit to new spending and projects before the UK heads to the polls on Thursday.

Joe Hayes, principal economist at S&P Global Market Intelligence, said: “We are seeing some evidence of a pre-General Election seize-up across the UK services economy, with growth in business activity slowing to a seven-month low in June as the prospect of a change in government led to the adoption of a ‘wait-and-see’ approach by some, restraining sales.”

Activity in the UK’s services sector increased at the fastest rate in nearly a year in April
Activity in the UK’s services sector increased at the fastest rate in nearly a year in April (Alamy Stock Photo)

The survey suggested that some firms wanted to know what the new government would look like before placing orders and commissioning new projects.

The sprawling services sector accounts for about 80% of the country’s total economic output and its employment.

The PMI survey includes hospitality, entertainment and culture, finance and insurance, and real estate and business services.

The latest iteration of the research also revealed that the average score between April and June was 53.3, only slightly lower than the 53.7 recorded for January to March.

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

The economy grew by 0.7% over the first three months of the year, according to official figures, pulling out of the brief recession it entered at the end of 2023.

Meanwhile, the survey highlighted a slight pick-up in sales growth from overseas customers, particularly in North America and Europe.

“Prices still continue to show a high degree of stickiness across the UK service sector, although input cost inflation once again trended lower in June,” Mr Hayes said.

But he said evidence that stronger economic conditions were motivating firms to raise their prices could be a concern for Bank of England policymakers when it came to setting interest rates.

They have stressed they want to be sure inflation will stay at its target level before they cut rates, which currently stand at 5.25%.