UK services sector growth slows as inflation hits three-year low, new data shows

05 June 2024 , 11:35

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Service sector firms saw growth slow in May as inflation pressures eased (Image: PA Archive/PA Images)

The UK's services sector saw a slowdown in growth last month, with inflation in the sector hitting a three-year low, according to fresh data.

The S&P Global UK services PMI survey for May scored 52.9, down from April's 55.0. This reading, while in line with economists' predictions, represents the slowest rate of expansion since November of the previous year.

A score above 50 indicates growth in the services sector, while anything below suggests contraction. The latest survey data pointed to a slowing in business activity and new orders, following an 11-month high in April. Concurrently, the rate of input cost inflation for firms dropped to its weakest since February 2021, leading to smaller price increases for customers.

Economists believe this slowdown in price rises could play a key role as Bank of England rate setters vote on a potential interest rate cut later this month. Joe Hayes, principal economist at S&P Global Market Intelligence, commented: "The PMI survey for May showed another reasonable rate of expansion in the UK service sector."

He added: "Taken in tandem with our earlier-released manufacturing survey, the PMIs imply GDP (gross domestic product) growth of around 0.3% so far in the second quarter." Hayes also noted that the prices measures will be of particular interest for the immediate outlook of the UK economy, with the possibility of the Bank of England moving to cut interest rates as early as this month.

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The Purchasing Managers' Index (PMI) surveys indicate that prices for UK services are increasing at the slowest rate in over three years. Rob Wood, Chief UK Economist at Pantheon Macroeconomics, commented: "The PMI continues to suggest robust growth, despite slipping back in May."

"The big news in the May PMI, however, was further signs of easing inflation pressure. The PMI suggests April's blowout services inflation print was a flash in the pan and should not be taken as a sign of strong annualised inflation continuing."

Lawrence Matheson