U Kservicessectorordersfallbymostsince 2022 PM Ishows

Published in Business and Finance on Tuesday, August 5th 2025 at 15:32 GMT by reuters.com
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Businesses in Britain's services sector reported the biggest drop in new orders in July since November 2022 and cut staffing by the most in six months, according to a survey on Tuesday that may add to the Bank of England's worries about growth.

UK Services Sector Slumps: New Orders Plummet, Raising Recession Concerns

The United Kingdom’s dominant services sector is experiencing a significant downturn, with new orders falling at the sharpest rate in over two years, according to the latest S&P Global Purchasing Managers' Index (PMI) data released on Monday. The figures paint a concerning picture of slowing economic activity and are fueling anxieties about a potential recession as the UK grapples with persistent inflation and rising interest rates.

The headline PMI for services unexpectedly dipped to 49.2 in July, down from June’s 50.3 and below market expectations of 50.7. A reading below 50 signals contraction, marking the first time in several months that the sector has indicated a decline. This drop underscores a broader trend of weakening economic momentum across various sectors within the UK economy.

The most alarming aspect of the report is the dramatic fall in new orders. Businesses reported a substantial decrease in incoming work, registering the steepest decline since November 2022 – a period coinciding with significant energy price shocks and widespread economic uncertainty following Russia’s invasion of Ukraine. This suggests that consumer demand is weakening considerably, impacting businesses' ability to maintain current levels of activity and potentially leading to job losses down the line.

Several factors are contributing to this decline in demand. Lingering inflationary pressures continue to squeeze household budgets, leaving consumers with less disposable income for discretionary spending. While inflation has eased from its peak, it remains stubbornly high compared to pre-pandemic levels, eroding real wages and impacting purchasing power. The Bank of England’s aggressive interest rate hikes, aimed at curbing inflation, are also contributing to the slowdown by increasing borrowing costs for both businesses and consumers. Higher mortgage rates, in particular, are putting a strain on household finances and dampening spending.

Beyond consumer-facing services, businesses catering to other sectors are also feeling the pinch. Investment decisions have been postponed or cancelled as companies reassess their outlook amid economic uncertainty. The ongoing challenges facing the construction sector, coupled with concerns about global trade conditions, are further weighing on overall business confidence.

While service providers reported a slight increase in employment during July, this is largely attributed to efforts to manage existing workloads and maintain customer relationships rather than reflecting optimism about future growth. Companies are increasingly cautious about hiring new staff, anticipating a period of reduced activity and potential cost-cutting measures.

The report also highlighted a concerning trend regarding price pressures. While input costs have generally stabilized or even fallen slightly in some areas, service providers are hesitant to pass on these savings to consumers due to competitive pressures and concerns about further dampening demand. This means that margins are being squeezed, potentially impacting profitability and investment capacity within the sector.

The decline in the services PMI adds to a growing body of evidence suggesting that the UK economy is slowing down significantly. Recent data has shown weakness across various sectors, including manufacturing and retail. While the Bank of England had previously hoped for a more resilient economic performance, these latest figures raise serious questions about the likelihood of avoiding a recession.

Economists are now reassessing their forecasts for the UK’s economic growth trajectory. The weaker-than-expected services PMI is likely to prompt further downward revisions to GDP projections and increase pressure on the Bank of England to reconsider its monetary policy stance. While another interest rate hike remains possible, policymakers will be acutely aware of the risk of pushing the economy into a deeper recession.

The situation is particularly challenging for the government, which faces mounting pressure to address the cost-of-living crisis and support businesses struggling with rising costs and falling demand. Targeted interventions and measures aimed at stimulating economic activity may become increasingly necessary in the coming months.

Ultimately, the latest PMI data serves as a stark reminder of the fragility of the UK economy and the significant challenges it faces. The sharp decline in new orders within the services sector is a worrying sign that points towards a period of prolonged economic weakness and underscores the need for careful policy responses to mitigate the potential impact on households and businesses alike. The coming months will be crucial in determining whether the UK can avoid a recession or if further measures are required to bolster economic resilience.

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