Media: “Perfect storm” pushes UK private sector into contraction

UK business activity has contracted for the first time in a year amid what analysts described as a “perfect storm” of pressure stemming from political uncertainty and the Iran war, Independent reports.

The decline was partly driven by a drop in the key services sector, as weaker confidence among both consumers and firms weighed on demand.

The S&P Global flash UK composite purchasing managers’ index (PMI), closely watched by economists, registered 48.5 for May, down from 52.6 in April. It marked the weakest reading since April last year.

Any reading above the 50.0 threshold indicates growth, while a figure below signals contraction. The latest result also came in significantly below the 51.6 forecast by a consensus of economists.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The UK economy is facing a perfect storm, as rising political uncertainty adds to the growing impact from the war in the Middle East.

“Businesses are reporting falling output, surging inflation, supply shortages and job cuts in May.

“Things could well get worse in the coming months, as we have been seeing some support to manufacturing from precautionary stock building which will inevitably fade once warehouses are full.”

The data showed the UK services sector recorded its sharpest decline in activity since January 2021. Surveyed firms cited hesitant spending, weaker investment sentiment from clients, and “delayed consumer spending decisions in response to the Middle East war”, particularly in relation to international travel.

Several businesses also linked the downturn to concerns over domestic political uncertainty affecting confidence.

By contrast, the manufacturing sector saw a modest uptick in demand, as customers sought to front-load purchases ahead of expected price increases and potential supply chain disruptions.

The report also found that private sector employment fell for the twentieth consecutive month, largely driven by job losses in the services sector.

By Vafa Guliyeva