FX.co ★ UK Private Sector Grows At Slowest Pace In 7 Months

In June, the UK private sector experienced its weakest growth in seven months as the deceleration in the service sector counterbalanced the robust performance in manufacturing, according to preliminary data released by S&P Global on Friday.

The flash composite output index dropped unexpectedly to 51.7 in June, down from 53.0 in May. Analysts had anticipated a slight increase to 53.1.

A score above 50.0 indicates expansion within the private sector. The latest figure highlights the most subdued growth since November 2023.

While manufacturing output reached its highest pace since April 2022 due to stronger order book volumes and solid business sentiment, services activity expanded at its slowest rate in seven months.

The services business activity index fell to 51.2 from 52.9 in May, below the forecasted 53.0.

Meanwhile, the manufacturing Purchasing Managers' Index (PMI) rose to 51.4, up from 51.2 in the previous month, and slightly above the projected 51.3.

New business saw an uptick, maintaining the same growth rate as in May. However, there was a slight decline in new export orders, ending a period of two months of marginal gains.

Employment continued to rise, marking increases in every month of 2024 so far. Nonetheless, the rate of job growth softened from May.

Inflationary pressures resurfaced in June, spurred by substantial increases in transport costs linked to global shipping bottlenecks. Input price inflation climbed from its 40-month low in May.

Prices charged by both manufacturing and services firms rose at a quicker pace, pushing prices charged inflation to a four-month high in June.

Business confidence dipped in June amid political uncertainty leading up to the general election.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that GDP is growing at a sluggish quarterly rate of just over 0.1 percent.

"…while a slowdown in economic growth may prove temporary, should businesses react positively to the policies announced by any new government, the stubbornness of underlying inflationary pressures above the Bank of England's target still looks somewhat ingrained," Williamson added.

Despite persistent inflation in the services sector, the economic slowdown might allow the Bank of England to cut interest rates by a quarter-point at the August meeting, according to Capital Economics' economist Ashley Webb.

If price pressures remain persistent, subsequent rate cuts may be slower and smaller than currently anticipated, Webb noted.

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