**British Business Activity Sees Growth in July Amid Temporary Respite in Iran Conflict**
In July, British businesses experienced a notable rebound in activity, marking the first increase in three months. This resurgence is partially attributed to a brief lull in the ongoing conflict in Iran, which has contributed to improved consumer confidence and spending patterns. According to the latest data from the S&P Global UK Composite Purchasing Managers’ Index (PMI), business activity rose to 52.1 in July, up from 49.3 in June. This reading, which surpasses the 50.0 threshold indicating growth, is the highest recorded since February and exceeds forecasts from a Reuters poll.
The PMI data reflects a positive shift across various sectors, with the services PMI climbing to 51.8 from 48.8—its strongest performance since April. The manufacturing PMI also showed slight improvement, increasing to 52.8 from 52.5. Chris Williamson, the chief business economist at S&P Global Market Intelligence, noted that the hospitality sector particularly benefited from favorable weather conditions, the ongoing soccer World Cup, and a trend of domestic holidays as rising costs deterred overseas travel.
In conjunction with the PMI data, official retail sales figures revealed an unexpected increase in sales volumes for June, driven largely by online shopping, clothing purchases, and sales of air conditioning units during the hot weather. The GfK consumer confidence index also indicated a rise in optimism among consumers, marking the highest levels of confidence since January. JPMorgan economist Allan Monks commented on the positive implications of these data points, suggesting they reflect growth, improved sentiment, and easing inflation pressures.
New Prime Minister Andy Burnham has introduced measures aimed at supporting households and businesses, including reductions in business rates for many hospitality firms, a cap on bus fares, and the elimination of taxes on domestic electricity bills. These initiatives may provide a short-term boost to the economy, but the sustainability of this growth remains uncertain.
Despite the positive indicators, concerns linger regarding the potential resurgence of cost pressures due to the re-escalation of the Iran conflict. The PMI data indicated that input price inflation for services and manufacturing reached its lowest point since February, aided by a decrease in fuel and raw material costs following the temporary de-escalation in the Gulf region. Williamson noted that the cooling price pressures could influence the Bank of England's decisions regarding interest rates, which are currently set at 3.75 percent.
Looking ahead, economists anticipate inflation rates to rise later in 2026, projected to reach around 3.5 percent, up from 2.6 percent in June—its lowest level in over a year. While business optimism regarding the upcoming year has reached its highest point since February, driven by relief from geopolitical tensions and lower oil prices earlier in July, the renewed conflict poses a risk to this optimism.
Additionally, while some firms reported benefits from investments in artificial intelligence, others expressed concerns about the broader economic outlook in the UK and ongoing domestic uncertainties. The employment measure within the PMI survey has continued to decline, a trend that has persisted since the first budget introduced by former finance minister Rachel Reeves in 2024, which included increased social security contributions for employers.
In summary, while July brought a welcome increase in business activity and consumer confidence in the UK, the long-term effects of geopolitical tensions and economic policies under Prime Minister Burnham remain to be seen. The coming months will be critical in determining whether this growth can be sustained or if external pressures will once again hinder progress.