The UK economy saw a contraction for the second month in a row in June, with S&P Global's flash Purchasing Managers' Index (PMI) dipping to 49.4 from 49.7 in May, marking a 14-month low. This figure indicates economic contraction, as any reading below 50 signifies a decline in activity. The downturn was largely attributed to the services sector, which recorded its weakest performance since January 2023, with its PMI falling to 48.7 from 49.3.
Despite the services sector's struggles, the manufacturing output index rose to a 21-month high of 53.6 in June, up from 52.2 in May. This temporary boost in manufacturing was linked to strategic stockpiling by clients anticipating price increases. However, new order growth in manufacturing slowed to a six-month low, suggesting this demand may be fading. Overall new business volumes declined at the fastest rate in 14 months, leading to a reduction in backlogs and a 21st consecutive month of trimming headcounts across the private sector.
Input prices continued to climb due to factors like higher commodity prices, elevated transport costs, and IT equipment surcharges, though the overall rate of inflation moderated from April's 41-month high. This led to a slightly softer rise in selling prices. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that while the economy contracted for a second month, it merely flat-lined over the second quarter. He highlighted that elevated price pressures from the energy shock and Middle East war, combined with subdued business growth expectations, contributed to continued job losses. Concerns about an unstable political environment are also unsettling business confidence and delaying spending.
Activity expectations for the next 12 months improved in June compared to May's low, driven by hopes for reduced supply disruption and resolution of the Middle East conflict. However, challenges like heightened inflation, ongoing geopolitical uncertainty, and squeezed consumer spending remain significant headwinds. The services sector's sharp decline was specifically attributed to rising costs and lower customer confidence, impacted by the war in the Middle East and domestic political uncertainty, marking the joint sharpest contraction in service sector output since early 2021.
The S&P Global Manufacturing PMI is expected to slow to 51.4 from 51.7, and the Services PMI to ease to 52.0 from 52.5 in the coming months, indicating continued pressure on the UK economy. The Euro edged up against the British Pound in anticipation of these PMI data releases.
