The UK’s services sector returned to modest growth in June, defying broader economic concerns and offering a glimmer of hope amid a backdrop of rising taxes, falling employment and geopolitical instability.
According to S&P Global’s latest flash purchasing managers’ index (PMI), business activity reached a three-month high, with the composite index rising to 50.7 from 50.3 in May. Any figure above 50 indicates expansion.
While the numbers suggest some resilience following a turbulent spring – marked by President Trump’s global tariff hikes and Chancellor Rachel Reeves’ sweeping tax rises – economists warned the recovery remains fragile and uneven.
Service providers reported a rise in client demand, marking the first monthly increase since November last year. However, firms remain reluctant to hire, with private sector employment falling for the ninth consecutive month – and at a faster rate than in May.
The latest data shows that while new business orders edged up domestically, foreign demand fell for the eighth month in a row, suggesting continued unease in global markets since Trump’s so-called “Liberation Day” trade announcements.
Prices also rose at their slowest rate in over four years, a sign that inflationary pressure within the private sector may be easing.
Chris Williamson, chief economist at S&P Global Market Intelligence, said the figures reflect an economy struggling to gain momentum: “UK growth remains disappointingly lacklustre. Second-quarter GDP is now expected to rise just 0.1 per cent, with business confidence subdued compared to a year ago.”
He added: “Employment continues to be cut as firms navigate a tough environment of higher staffing costs, weaker demand, and mounting global uncertainty.”
The weak labour market trend comes as firms deal with higher employer national insurance contributions and reduced investment thresholds, part of Reeves’ efforts to rebalance the tax system. The increase in labour costs appears to be weighing on staffing decisions even as demand recovers slightly.
Tensions in the Middle East, rising oil prices, and ongoing doubts about global trade are adding to the cautious sentiment, particularly among manufacturers, who remain vulnerable to external shocks.
Pantheon Macroeconomics’ Elliott Jordan-Doak said the PMI data hints at a tentative rebound after a sharp slowdown in April, when official figures showed GDP shrank by as much as 0.3 per cent in a single month.
“The PMI suggests that business confidence is staging a fragile recovery after being battered by tariff threats and tax increases,” he said. “That said, rising geopolitical stress is likely to be added to the growing list of worries facing businesses, particularly in manufacturing, where oil price fluctuations can be damaging.”
While the modest uptick in services activity offers a welcome boost, analysts warn that the UK’s growth path remains vulnerable to derailment from both domestic policy pressures and international volatility. The challenge for policymakers will be to nurture this fragile recovery without undermining it through further fiscal tightening or regulatory shocks.
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UK services sector shows signs of ‘fragile recovery’ despite job cuts and weak growth
