UK services sector contracts at fastest pace since January 2023

By Andy Bruce

June 23 (Reuters) - Britain's services sector, the engine of the economy, contracted this month at the fastest rate in nearly three-and-a-half years, according to a survey on Tuesday that signaled a tough road ahead for Andy Burnham, the likely next prime minister.

The S&P Global UK Services Purchasing Managers' Index (PMI) fell in June to 48.7 from 49.3, according to a provisional, or flash, estimate. That was the weakest reading since January 2023 and below all forecasts in a Reuters poll that had pointed to an improvement to 50.1.

Readings below 50 denote a contraction in activity, and this month's survey pointed to sharp declines in employment and new business. The latter was at its lowest ebb since January 2021. 

Published a day after Prime Minister Keir Starmer said he would quit, the PMI underscored the difficult economic position Burnham will face - assuming no other lawmaker from the Labour Party challenges him.

Stop-start growth, stickier inflation than in other big developed economies, and strained public finances will be among the economic challenges the former Greater Manchester mayor will face.

Official data earlier this month showed the economy contracted by 0.1% in May and data company S&P Global said a similar outturn looked likely in June, leaving the economy flat for the second quarter after a strong start to 2026.

Only a slight easing of cost pressures, which accelerated after the outbreak of war in the Middle East sparked a surge in energy prices, marked a bright spot in June's PMIs.

Oil prices have fallen below $80 a barrel from above $120 earlier in the conflict, following an apparent truce between the U.S. and Iran that promises to keep open the Strait of Hormuz. But they are still around $10 a barrel higher than before the conflict.

But S&P Global warned that broader cost pressures remained relatively high.

"These higher costs, combined with subdued business growth expectations for the year ahead, have caused employment to continue to fall at a worryingly high rate," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

He added that the unstable political environment at home had unsettled some businesses and that a period of calm was needed to help revive economic growth.

The PMI for the manufacturing sector pointed to slowing growth in Britain's factories, falling to a three-month low of 53.1 in June from 53.9 in May.

The composite PMI, which combines the services data with manufacturing, fell to 49.4 from 49.7, its lowest since April 2025.

(Reporting by Andy Bruce; Editing by Joe Bavier)