Britain's dominant services sector contracted in June at the sharpest clip seen since January 2023, according to a provisional S&P Global Purchasing Managers' Index (PMI) published on Tuesday. The flash UK Services PMI fell to 48.7 from 49.3 in May, a reading below the 50 threshold that denotes shrinking activity.
The June PMI undershot market expectations. A Reuters poll had pointed to a rise to 50.1, making the actual outcome weaker than all forecasts in that survey. The month’s survey identified particularly pronounced drops in employment and new business volumes, with new business at its lowest level since January 2021.
Published a day after Prime Minister Keir Starmer said he would quit, the PMI underlines the economic challenges confronting Andy Burnham if he becomes prime minister - assuming no other Labour lawmaker mounts a successful challenge. The report highlighted a landscape of stop-start growth, comparatively persistent inflation, and strained public finances that will frame policy choices for incoming leadership.
Official data earlier in June showed the UK economy contracted by 0.1% in May. S&P Global noted that a similar outcome for June looked likely, which would leave the economy effectively flat for the second quarter after a strong start to 2026.
On costs, the PMIs registered only a slight easing in pressures in June. Those pressures had intensified after the outbreak of war in the Middle East triggered a sharp rise in energy prices. Although oil has retreated from levels above $120 a barrel earlier in the conflict to below $80 a barrel following an apparent truce between the U.S. and Iran that appears to keep the Strait of Hormuz open, prices remain around $10 a barrel higher than before the conflict.
S&P Global cautioned that, despite the recent decline in oil, broader cost pressures across the economy stayed relatively high. Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "These higher costs, combined with subdued business growth expectations for the year ahead, have caused employment to continue to fall at a worryingly high rate." He added that the unstable political environment at home had unsettled some businesses and that a period of calm was needed to help revive economic growth.
The manufacturing sector also showed signs of cooling. The S&P Global Manufacturing PMI dropped to a three-month low of 53.1 in June from 53.9 in May, indicating slower but still-positive expansion in factories.
When combined, the services and manufacturing readings produced a composite PMI of 49.4 in June, down from 49.7 and marking the lowest composite reading since April 2025. The composite reading below 50 signals that overall private-sector activity in the UK was contracting in the month.
Collectively, the flash PMIs portray an economy coping with weakening demand, elevated input costs, and political uncertainty. The indicators point to immediate challenges for policymakers and business leaders alike - notably in labor markets, service-driven activity, and in sectors sensitive to energy prices.
What this means
- Services activity has moved into contraction in June, representing a notable deterioration from May.
- Employment and new business fell sharply, with new business at its weakest since January 2021.
- Manufacturing growth slowed but remained in expansionary territory, while the composite PMI dipped below 50.