Growth in the UK services sector slowed more than expected to its weakest level in six months, according to a closely watched business survey.
As the campaign began For a general election expected to be dominated by the economy, the S&P Global UK Composite Purchasing Managers’ Index (PMI) suggested a general slowdown in the pace of business activity.
The index, in which any reading above 50 represents growth, stood at 52.8 in May – below the score of 54.1 achieved in the previous month.
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The survey of purchasing managers, which takes into account responses from service and manufacturing companies, was forecast by economists to be roughly flat relative to April’s figures.
The report states that the recovery in manufacturing activity, which recorded its best monthly performance in two years, was more than offset by the weakening of dynamism in services, which suffered from a slowdown in new orders.
Its authors stated that the survey data was consistent with gross domestic product (GDP) increasing by around 0.3% in the second quarter of the year to the end of June.
The Office for National Statistics previously indicated an advance estimate for growth during the first quarter of the year of 0.6%.
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If true, the PMI’s forecast for second-quarter growth would represent a significant slowdown, although it is in line with recent annual forecasts – such as those from the Bank of England and the International Monetary Fund.
The new year marked the end of a Six-month recession for the UK economy – a recession that was largely attributed to the effects of interest rate increases by the Bank to control inflation.
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The official rate of inflation is currently slightly above the 2% target rate, but April’s numbers were slightly more positive than expected, prompting financial markets to shift their bets for a first interest rate cut from June to August.
The calling of elections for July 4th means that Rishi Sunak’s Conservatives, if the market mood is right, will not benefit at the polls from any applause about a cut in borrowing costs.
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The PMI survey suggested that some of the Bank’s concerns about inflation would be alleviated by its findings.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “With companies now reporting the slowest price growth in more than three years and global inflation falling close to target, the PMI data supports the view that that the Bank of England will start cutting interest rates in August, provided the data continues to move in the right direction over the summer.
“This speculation of rate cuts has already contributed to improving business confidence, with optimism for the year
future, rising further in May, raising hopes that the battle against inflation can be won without the UK having
suffered a serious recession.”
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