Growth across the private sector slowed in May, though economists were buoyed by early signs of cooling services sector inflation.
The fresh data showed that the UK’s economic recovery from the mild recession seen at the end of 2023 lost momentum this month, according to experts. On Thursday, the S&P Global/CIPS flash UK purchasing managers' index (PMI) posted a reading of 52.8 for May, down from 54 in April.
These figures are based on preliminary data, with any score below 50 indicating contraction and any score above signalling growth. Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The survey data are consistent with gross domestic product rising by around 0.3% in the second quarter, with an encouraging revival of manufacturing accompanied by sustained, but slower, service sector growth.”
Businesses reported the softest increase in average selling prices for more than three years this month. However, experts were encouraged by slowing input cost inflation, which fell to its lowest level in seven months, after a sharp rise in April.
Input costs refer to the expenses associated with producing a business's products and services. Inflation within the services sector, a crucial measure of domestic price pressure, has remained persistently high in recent weeks. The Office for National Statistics revealed on Wednesday that services inflation was at 5.9% in April, a slight decrease from 6.0% in March.
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However, today's survey suggests this trend will reverse in the upcoming months. This indicator has been a significant consideration for Bank of England economists when deciding whether to lower the UK's base interest rate, with the majority opting to wait for a drop before cutting rates.
Additionally, a temporary spike in wage-related cost growth in April, spurred by the introduction of a higher national living wage, showed signs of cooling in May, according to PMI data. On the other hand, manufacturing output bounced back into growth after a minor decline last month, achieving a two-year high index score of 52.7.
Mr Williamson stated that today's reports of a cooling in services inflation is "welcome news... which is needed to open the door for the Bank of England to start cutting interest rates". He further added: "Firms are also reporting that strong competition is limiting their scope to raise prices, especially in the face of weakened demand due to the elevated cost of living."
"With companies now reporting the slowest price growth in over three years, and headline inflation falling close to target, the PMI data support the view that the Bank of England will start cutting interest rates in August providing the data continue to move in the right direction over the summer."
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