Private sector suffers slowdown in growth as inflation for services remains high

21 June 2024 , 11:09

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Inflationary pressures grew in the services sector last month (Image: PA Wire/PA Images)

The UK's private sector has experienced its slowest growth in seven months this June, as inflation for goods and services remains high and firms delay spending decisions until after the General Election.

The S&P Global/CIPS flash UK composite purchasing managers' index (PMI) reported a reading of 51.7 in June, down from 53 in May. These figures are based on preliminary data. A score below 50 indicates contracting activity, while a score above signifies growth.

The UK's services sector, which showed a reading of 51.2 for June, slowed the rest of the private sector's growth for the second consecutive month. Despite higher customer demand boosting activity, it wasn't enough to offset the election-related pause in spending.

However, the manufacturing sector, which accounts for less than 10% of the UK's economic output, saw stronger growth with a production output reading of 54.2, a 26-month high. Chris Williamson, chief business economist at S&P Global Market Intelligence, said firms had put decision making on a "hiatus" until after the General Election.

He also noted that stubbornly persistent service sector inflation a major barrier to lower interest rates remains evident in the survey, but should at least cool further from the current 5.7% pace in coming months. "However, companies' costs are rising, most notably in manufacturing, where shipping costs in particular are spiking again and adding to a renewed rise in inflationary pressures from goods."

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This follows the Bank of England's decision on Thursday to maintain interest rates at 5.25%, despite the headline rate of inflation reaching the Bank's 2% target in May for the first time in nearly three years. Yet, inflationary pressures have quickened, with input price inflation rebounding from its 40-month low in May.

Manufacturing input prices also saw the steepest increase in 17 months, with firms noting higher prices for items such as metals and paper. Wages continued to be the primary driver of services cost inflation, although shipping and software costs were also frequently mentioned by respondents.

Mr Williamson further commented: "In short, while a slowdown in economic growth may prove temporary, should businesses react positively to the policies announced by any new government, the stubbornness of underlying inflationary pressures above the Bank of England's target still looks somewhat engrained."

Lawrence Matheson