UK Economy Slows as Services Sector Contracts in June

Britain's services industry experienced its sharpest contraction in three and a half years in June, with the purchasing managers' index (PMI) for the sector falling to 48.8. This marks the second consecutive month below the 50-point threshold, which separates growth from contraction, indicating a loss of economic momentum.

The decline comes as the lingering effects of the Iran war continue to impact costs and business confidence, despite a ceasefire in the Middle East and a decrease in oil prices from their initial peak. Strong cost pressures, weak demand, and business uncertainties related to the conflict were cited as primary concerns.

"June data confirmed a clear loss of momentum for the UK economy during the second quarter of 2026, following a positive start to the year," said Tim Moore, economics director at S&P Global Market Intelligence, which compiled the survey. "Strong cost pressures, lacklustre demand and business uncertainties arising from the Middle East conflict were the most prominent themes."

These factors have contributed to fragile investment sentiment, increased risk aversion among clients, and squeezed consumer budgets, according to the report. Business confidence remained subdued compared to normal levels.

However, some economists suggest that the current downturn may be temporary. "With geopolitical tensions easing and oil prices falling sharply, June may well prove to be the low point," said Martin Beck, chief economist at WPI Strategy. "The result is that the next prime minister may find themselves catching a lucky break."

The PMI figures for June reflect a challenging environment for Britain's service sector, which is a significant contributor to the UK's overall economic output. The confluence of external geopolitical events and domestic economic pressures has created a notable slowdown in activity.