Consumer spending drives ‘healthy pickup’ for UK businesses
Consumer and business spending has led to a “healthy pickup” in business activity, fresh research has suggested, despite concerns income had been squeezed by higher taxes and energy bills.
The Labour government was recently dealt a blow as the Office for National Statistics (ONS) revealed the UK economy contracted by 0.3 per cent in April, with fresh GDP data to be released next week.
But new figures published by S&P Global suggest that the services sector, which makes up four fifths of gross value added to the UK economy, bounced back in June after a worrying slump following the introduction of tax rises.
The credit rating agency’s purchasing managers’ index (PMI) for business activity hit 52.8 last month, above the 50-point benchmark showing neutrality in output.
S&P Global said the growth from 50.9 on May was the fastest seen in ten months in what may signal that the UK economy was turning a corner.
But British workers are not benefitting from the uplift as employment numbers decreased for the ninth month in a row, according to researchers.
Respondents to the S&P Global’s survey of some 650 companies said redundancies and non-replacement of leavers accounted for the drop in June, which was steeper than that seen in May.
S&P Global director Tim Moore said the “modest rebound” in UK service sector growth was better than expected though the weakness of global demand for UK goods due to President Donald Trump’s trade policies threatened to slow down gains in the coming months.
“While total new work picked up in June, shrinking export sales were a constraint on service sector growth,” Moore said.
“Survey respondents cited headwinds from US tariffs and geopolitical tensions, which resulted in subdued demand conditions across global markets.”
EY Item Club’s Matt Swannell said the latest data showed there had been a “healthy pickup” in services activity, pointing to a small expansion in the economy over the second quarter as a whole.
“The survey’s readings tend to be heavily influenced by fluctuations in business sentiment rather than genuine change in private sector activity, but on this occasion, it appears likely that official GDP growth in the second quarter will be broadly in line with the survey’s findings.”
Businesses fear lower sales due to Trump
S&P Global’s survey was published as the Bank of England revealed that more firms were worried about the impacts of US tariffs despite trade deals being struck.
President Trump’s flip-flopping was cited as a top three “source of uncertainty” for 14 per cent of businesses surveyed.
Nearly a third of firms said they expected sales to be lower in the next 12 months due to subdued demand while one in five said they expected average prices to be lower.
The Bank’s monthly survey of more than 2,000 businesses, titled the Decision Maker Panel (DMP), showed that firms expected price growth to come in at 3.5 per cent in June while wage growth would fall to 4.6 per cent.
Pantheon Macroeconomics’ Elliott Jordan-Doak said: “The DMP survey shows stubborn price pressures and rebounding employment growth, pointing to a need for Monetary Policy Committee caution.
“Accordingly, we continue to think that one more rate cut this year is the right call, even if rate setters spooked by falling payrolls choose to go ahead with that cut in August.”