UK service sector returned to growth in July as stronger consumer spending and robust demand for technology services helped lift business activity, offering fresh evidence that the economy regained some momentum after a subdued start to the summer.
The latest S&P Global UK Services Purchasing Managers’ Index (PMI) rose to 52.1 in July from 48.8 in June, comfortably above the 50-point threshold that separates expansion from contraction. The reading also exceeded economists’ expectations of 51.8 and marked the strongest performance since April.
The rebound suggests Britain’s dominant services sector, which accounts for around four-fifths of economic output, has proved more resilient than many analysts had anticipated despite persistent geopolitical uncertainty and elevated borrowing costs.
Tim Moore, economics director at S&P Global Market Intelligence, said businesses benefited from improving consumer demand and continued strength in technology-related services.
UK service providers moved back into growth mode during July as greater consumer spending and strong demand for technology services helped to boost overall business activity,” he said.
Companies also reported a modest increase in new orders, ending four consecutive months of declining business. Survey respondents pointed to a general improvement in market conditions, although many described the recovery in household spending as tentative rather than broad-based.
Businesses nevertheless warned that uncertainty stemming from conflict in the Middle East continued to weigh on customer confidence and investment decisions.
There were also encouraging signs on inflation. Input cost pressures eased further during July, with firms reporting the slowest pace of price increases since February, helped by lower fuel costs and a moderation in other operating expenses.
However, economists cautioned against reading too much into a single month’s improvement.
Matt Swannell, chief economic adviser at the Item Club, said the recovery was likely to prove fragile as higher household energy bills begin to erode consumers’ purchasing power.
He warned that inflation had probably passed its recent low point following July’s increase in the energy price cap, adding that rising living costs were expected to squeeze real disposable incomes during the second half of the year.
While July’s survey offers reassurance that the UK’s largest sector has regained some momentum, sustaining that recovery may depend on whether consumer spending can withstand renewed inflationary pressures in the months ahead.
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