London (Parliament News) – Expansion in the UK service sector slowed last month due to election uncertainty, with business activity hitting a seven-month low. Analysts anticipate a bounce-back post-election amid cautious spending.
How did the UK service sector perform in June?
Expansion in the UK service sector stalled last month amid a “seize-up” in movement as companies put schemes on hold in the run-up to the general election. The latest picture from the data provider S&P Global demonstrated growth in the UK’s dominant service sector – which includes transport, IT, finance, communications, property and business services – delayed in June to the lowest level in seven months.
The survey of nearly 650 businesses, which is closely watched by the Bank of England, showed a continued increase in business activity at the end of the second quarter, extending an unbroken growth run to eight months. However, businesses expressed some clients were opting to stay and see the results of Thursday’s vote before putting orders and commissioning new projects.
Was there a slowdown in UK service sector expansion?
Joe Hayes, a principal economist at S&P Global Market Intelligence, stated: “We are seeing some evidence of a pre-general election seize-up across the UK services economy, with growth in business activity slowing to a seven-month low in June as the prospect of a change in government led to the adoption of a ‘wait-and-see’ approach by some, restraining sales.”
Keir Starmer is widely anticipated to secure a landslide win over Rishi Sunak’s Conservatives, with the last opinion polls before voters go to the ballot box revealing a Labour majority well into triple digits over a broken Tory party.
How did businesses react to election uncertainty in June?
City analysts have offered a decisive Labour victory could give Britain a stability premium in global markets, enabling businesses to invest in the UK at a time of growing political unrest across other Western economies. However, some financial planners have expressed their wealthy clients are marketing assets and property in fear that Labour could raise capital gains tax.
The reading on the S&P Global Services purchasing managers’ index (PMI) was delayed from 52.9 in May to 52.1 in June, its most inferior reading since November but changed up from a preliminary assessment of 51.2. A reading of 50 isolates growth in business activity from contraction. Hayes stated the evidence from the PMI surveys indicated Britain’s economy was on track for another quarter of transition in the three months to the end of June, “albeit one that will be less punchy than the first quarter’s 0.7%”.
Official figures revealed that the UK economy exited a slump in the first three months of the year, after a surface downturn in the second half of 2023 as households slashed their spending amid the cost of living situation and higher Bank of England interest rates. Rob Wood, the chief UK economist at the consultancy Pantheon Macroeconomics, expressed the PMI would “likely bounce back” after the general election as corporations and households resume spending, with the wait-and-see procedure expected to fade away.