UK businesses and consumers more positive, but boost may not last

By Suban Abdulla

LONDON, July 24 (Reuters) - British firms reported the first rise in activity in three months in July, helped by a brief respite in the Iran war, while consumers grew in confidence and spent more, according to data that may only offer only a short-lived boost to new Prime Minister Andy Burnham. 

The S&P Global UK Composite ‌Purchasing Managers' Index, which gives a snapshot of businesses, rose to 52.1 in July from 49.3 in June, according to a preliminary estimate published on Friday.

It was the strongest reading since February and above all forecasts in a Reuters poll.

Readings above 50.0 indicate growth in activity, while those below that level point to contraction.

S&P's services PMI rose to 51.8 from 48.8, its strongest since April, while the manufacturing equivalent rose to 52.8 from 52.5.

Chris Williamson, S&P Global Market Intelligence's chief business economist, said hospitality firms benefited from hot weather, the soccer World Cup and people opting to holiday in Britain as high costs and uncertainty deterred overseas travel.

PMI CHIMES WITH OTHER MORE UPBEAT ECONOMIC DATA 

Also on Friday, official retail sales data showed a surprise increase in sales volumes in June, driven by online sales, clothing and shoppers buying air conditioning to cool off during hot weather.

The separate GfK consumer confidence index showed consumers this month became the most optimistic since January on hopes of a turnaround in the economy.

"A bunch of timely data for June and July this morning sent a positive message on growth, sentiment and inflation pressures," said JPMorgan economist Allan Monks.

"The caveat is that some deterioration in these metrics is now likely due to recent energy moves and the fading of some temporary influences."

Burnham has offered more support to households and businesses since becoming prime minister on Monday, announcing a cut in business rates for many hospitality firms, a cap on bus fares and the removal of tax on domestic electricity bills.

RESUMPTION IN IRAN WAR TO REIGNITE COST PRESSURES

Services and manufacturing businesses covered by the PMI reported the combined weakest input price inflation since February, helped by lower fuel and raw material costs as a brief de-escalation in the Gulf conflict reduced oil prices.

"Price pressures cooled thanks to the lower oil prices seen during the first half of the month, which could strengthen speculation that the Bank of England will hold off raising interest rates," Williamson said. 

The BoE is expected to hold interest rates at 3.75% next week as it assesses the impact of the conflict which has flared up again. Economists are predicting inflation to climb later in 2026 to around 3.5%, up from 2.6% in June which was its lowest in more than a year.

Business optimism about the year ahead was the highest since February with companies citing relief from geopolitical tensions and the drop in oil prices in the first part of July. 

But the more recent re-escalation in tensions risks derailing the easing in cost pressures, S&P said.

While some firms also pointed to a boost from AI investment spending, others were concerned about the broader UK economic outlook and elevated domestic business uncertainty.

The PMI survey's employment measure extended its continuous decline since the first budget of former finance minister Rachel Reeves in 2024 which included a rise in social security contributions paid by employers.

(Reporting by Suban Abdulla; Editing by William Schomberg and Hugh Lawson)