services sector — Britain’s services sector has recorded its sharpest contraction since early 2023, with activity decreasing for the second consecutive month in June. The S&P Global Purchasing Managers’ Index (PMI) for services fell to 48.8, down from 49.3 in May, marking the weakest performance since January.
This decline is largely attributed to ongoing challenges stemming from the Iran war, which has placed additional pressure on companies. The latest PMI reading, while slightly higher than a preliminary estimate of 48.7, still indicates a contraction as any figure below 50 signals a decrease in activity.
New work within the sector contracted at its fastest rate since November 2022, with businesses expressing concerns over leadership uncertainties, particularly regarding the successor to Prime Minister Keir Starmer, and the impact of global inflation. As uncertainties loom, the survey reflects a growing sense of caution among service sector firms.
Tim Moore, economics director at S&P Global Market Intelligence, noted, “June data confirmed a clear loss of momentum for the UK economy during the second quarter of 2026, following a positive start to the year.” He highlighted strong cost pressures, subdued demand, and business uncertainties related to the Middle East conflict as significant factors affecting performance.
Despite some signs of easing inflationary pressures, challenges remain. The gauge of input cost inflation fell to its lowest level since March, yet businesses reported that rising salaries and transport costs continue to drive up expenses. While firms have been passing these costs onto customers, the rate of increase has slowed to its softest pace since February.
The composite PMI, which includes manufacturing data, was revised down to 49.3 from a preliminary reading of 49.4, representing the weakest performance since April 2025 and a decrease from May’s 49.7. Furthermore, business sentiment regarding the next 12 months is at its second-lowest level since April 2025. There is, however, a slight increase in optimism linked to potential peace talks between the United States and Iran and advancements in artificial intelligence.
In a troubling trend, hiring has contracted for the 21st consecutive month, marking the longest continuous period of job shedding since February 2010. This ongoing downturn in employment reflects the cautious approach businesses are taking in response to the prevailing economic challenges.
