Growth in the UK service sector slowed last month amid a “seize-up” in activity as companies put projects on hold in the run-up to the general election.
The latest snapshot from the data provider S&P Global showed growth in the UK’s dominant service sector – which includes transport, IT, finance, communications, property and business services – slowed in June to the lowest level in seven months.
The survey of about 650 businesses, which is closely monitored by the Bank of England, showed a continued expansion in business activity at the end of the second quarter, stretching an unbroken growth run to eight months.
However, businesses said some clients were opting to wait and see the results of Thursday’s vote before placing orders and commissioning new projects.
Joe Hayes, a principal economist at S&P Global Market Intelligence, said: “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 expected to secure a landslide victory over Rishi Sunak’s Conservatives, with the final opinion polls before voters go the ballot box indicating a Labour majority well into triple digits over a shattered Tory party.
City analysts have suggested a decisive Labour win could give Britain a stability premium in global markets, encouraging businesses to invest in the UK at a time of rising political unrest across other western economies. However, some financial planners have said their wealthy clients are selling assets and property in the fear that Labour could increase capital gains tax.
The reading on the S&P Global services purchasing managers’ index (PMI) slowed from 52.9 in May to 52.1 in June, its lowest reading since November but revised up from a preliminary estimate of 51.2. A reading of 50 separates growth in business activity from contraction.
Hayes said the evidence from the PMI surveys suggested Britain’s economy was on track for another quarter of growth in the three months to the end of June, “albeit one that will be less punchy than the first quarter’s 0.7%”.
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Official figures showed that the UK economy exited recession in the first three months of the year, after a shallow downturn in the second half of 2023 as households cut their spending amid the cost of living crisis and higher Bank of England interest rates.
Rob Wood, the chief UK economist at the consultancy Pantheon Macroeconomics, said the PMI would “likely bounce back” after the general election as businesses and households resume spending, with the wait-and-see approach expected to fade away.