The UK's economic momentum has weakened once more, with private sector activity contracting for a second consecutive month and the labor market continuing to deteriorate, significantly heightening concerns about growth prospects for the second quarter.
Data from S&P Global on the 23rd showed the preliminary UK Purchasing Managers' Index (PMI) for June fell to 49.4, marking a 14-month low. This is the second month in a row the index has remained below the 50-point threshold that separates expansion from contraction, indicating overall private sector activity is still shrinking. Notably, the survey period covered June 11-19, which included events such as a temporary easing of Middle East tensions, but this failed to reverse the overall weak trend.
PMI in Contraction, Employment at Near Two-Year Low
The latest figures show the composite PMI declined further to 49.4 in June from 49.7 in May, continuing the contraction. The employment sub-index performed particularly poorly, having been in contraction territory for 21 consecutive months, and fell further to 46.8 in June, its lowest level in nearly two years.
S&P Global noted that the persistent weakness in employment reflects cautious business expectations for future demand, compounded by cost pressures and geopolitical disruptions, which continue to weigh on hiring intentions. Neither the services nor manufacturing sectors show clear signs of improvement, with overall economic momentum remaining weak.
Inflationary Pressures Ease Marginally, Rate Cut Expectations Rise
Although input costs and output prices are still rising, the pace of increase has moderated. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that some price pressures related to geopolitical conflicts are easing, and businesses' pricing power is also being constrained by weak demand.
Market institutions widely believe this combination suggests the risk of a "secondary surge" in inflation is diminishing, thereby creating room for a shift in monetary policy. Ashley Webb, an analyst at Capital Economics, further pointed out that current economic data supports the Bank of England maintaining a wait-and-see stance, and forecasts the benchmark interest rate will be cut from 3.75% to 3% by 2027.
Political and Growth Pressures Mount, Labour's Economic Narrative Tested
The release of this PMI data coincides with a period of political turbulence in the UK. Following the announcement of Prime Minister Keir Starmer's resignation, the Labour Party is set for a leadership reshuffle, which also introduces uncertainty regarding the continuity of its economic policies.
Since the 2024 general election, Labour has made "restoring growth" a core policy objective. However, real-world performance has shown significant volatility: the UK recorded the fastest growth among G7 nations in the first quarter, but economic momentum has rapidly receded in the second quarter, with the ongoing private sector contraction casting a shadow over growth prospects once again.
Economists widely worry that if the current trend continues, UK GDP for the second quarter could fall back into negative growth territory, making it difficult to sustain the previous phase of recovery.
Comments