The UK economy contracted for the second month in a row in June, as indicated by S&P Global's Purchasing Managers' Index (PMI), which slipped to 49.4 in its initial "flash" estimate. This reading represents a 14-month low, down from 49.7 in May, with any figure below 50 signifying economic contraction. This downturn also saw firms reducing employment for the 21st consecutive month.
The decline was largely attributed to sustained weakness within the services industry, which saw its PMI fall to 48.7, marking the fastest contraction since January 2023 and a 41-month low. This weakness in the services sector, which accounts for roughly four-fifths of the UK's output, was exacerbated by sharply increasing costs, decreased customer confidence, ongoing geopolitical tensions (specifically the Iran war and Middle East conflict), and domestic political uncertainty.
While the services sector struggled, manufacturing output showed a temporary uptick, with its Output Index rising to 53.6 from 52.2 in May. However, this growth was primarily driven by businesses stockpiling products in anticipation of future price increases and supply chain disruptions, rather than genuine demand. New manufacturing orders actually slowed to a six-month low, suggesting this manufacturing cushion is temporary and unsustainable.
Economists, including Chris Williamson from S&P Global Market Intelligence and Thomas Pugh from RSM UK, suggest the economy contracted by about 0.1% in June and remained broadly flat over the second quarter. They anticipate continued stagnation for the rest of the year, with concerns that the manufacturing boost will falter once stockpiling ceases. Despite a slight moderation in prices paid by businesses, prices charged to consumers continued to rise, albeit at a slower rate than in May.
