UK business activity has declined for the first time in a year in the face of a “perfect storm” of pressure from political uncertainty and the Iran war, according to new figures. The slump was partly linked to a drop in the key services sector due to weaker confidence among consumers and firms.
PMI Reading Falls Below 50 Threshold
The S&P Global flash UK composite purchasing managers’ index (PMI), which is watched closely by economists, recorded a reading of 48.5 for May, decreasing from 52.6 in April. It was the weakest reading since April last year. Any score above the 50.0 threshold represents growth, with a reading below this pointing to decline. It was significantly below the 51.6 reading predicted by a consensus of economists.
Economist Warns of ‘Perfect Storm’
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The UK economy is facing a perfect storm, as rising political uncertainty adds to the growing impact from the war in the Middle East. Businesses are reporting falling output, surging inflation, supply shortages and job cuts in May. Things could well get worse in the coming months, as we have been seeing some support to manufacturing from precautionary stock building which will inevitably fade once warehouses are full.”
Services Sector Hit Hardest
The fresh data showed that the UK’s service sector saw its sharpest decline in business activity since January 2021. Surveyed firms highlighted hesitant spending and weaker investment sentiment from clients, as well as “delayed consumer spending decisions in response to the Middle East war”, particularly for international travel. A number of other firms also linked the decline to concerns over domestic political uncertainty impacting confidence.
Manufacturing Sees Temporary Boost
Elsewhere, the report saw manufacturers benefit from an uptick in demand as customers sought to beat expected price increases and supply chain disruption. May’s data also highlighted that the number of employees in the private sector fell for the twentieth consecutive month, driven by job losses in the service sector.
