UK Services Sector Remains Stuck in Contraction

The S&P Global UK Services PMI was revised up to 49.3 in May 2026 from a flash estimate of 47.9, but down from April’s 52.7, signalling the first downturn since April last year. New orders fell for a third month amid persistently subdued domestic and overseas demand due to elevated economic and political uncertainty. Hospitality and transport highlighted weaker discretionary spending and higher input costs, while professional services cited rising client risk aversion. Service providers cut payrolls sharply, with job shedding the fastest since February. Input cost inflation remained elevated, easing only slightly from April’s 41-month high, driven by higher energy, fuel and transport costs as well as rising wages and technology expenses. Output price inflation eased from April’s 39-month peak as firms passed on higher costs. Business expectations for the year ahead fell to their weakest since April 2025, mainly reflecting concerns over rising price pressures.

The S&P Global UK Services PMI fell to 47.9 in May 2026 from 52.7 in the prior month, missing market forecasts of 51.7, flash estimates showed. The data indicated the first contraction since April last year and the sharpest downturn since early 2021, as new orders declined. Firms cited greater economic hesitancy and weaker investment sentiment among clients, along with delayed consumer spending decisions in response to the Middle East war, particularly affecting international travel. Several also pointed to domestic political uncertainty weighing on client confidence. As a result, the rate of job shedding accelerated. On the price front, average cost burdens increased, driven by rising oil prices and transport costs, as well as strong wage pressures. Lastly, service providers signaled weaker growth expectations, with planned investment spending and ongoing AI innovation overshadowed by headwinds from inflation, geopolitical uncertainty, and subdued discretionary consumer demand.

The S&P Global UK Services PMI was revised slightly higher to 52.7 in April 2026 from a flash estimate of 52, up from March's 11-month low of 50.5. The data signaled a moderate expansion of the service sector, amid reported resilient global demand for technology services. However, new business intakes remained subdued overall amid headwinds from the Middle East conflict, with concerns over intensifying inflationary pressures, global supply shortages and elevated borrowing costs. Employment fell further, but the rate of job shedding was the weakest in six months. Service providers saw the fastest rise in cost burdens since November 2022, driven mainly by higher transport costs and wages. Several firms also introduced fuel surcharges, pushing service-sector output price inflation to a three-year high in April. Lastly, businesses continued to expect an upturn in business activity over the year ahead. Optimism edged up from March’s nine-month low but remained below the long-run average.