**British Services Sector Experiences Sharpest Contraction Since Early 2023**
The British services sector has recorded a significant contraction for the second consecutive month in June 2023, marking the steepest decline since the beginning of the year. According to the latest data from the S&P Global Purchasing Managers’ Index (PMI), the services sector index fell to 48.8 in June, down from 49.3 in May. A reading below 50 indicates a contraction in activity, and the June figure is the lowest since January 2023.
This downturn is attributed to various factors, including the ongoing repercussions of the conflict in Iran, which has created uncertainty for businesses operating within the UK. The survey results suggest that companies are grappling with a combination of rising inflation, concerns about political leadership, and a general decline in demand.
The index's decline reflects a broader trend, with new work in the services sector contracting at its fastest rate since November 2022. Businesses have expressed worries regarding the potential replacement of Prime Minister Keir Starmer and the implications of his fiscal policies, further contributing to the prevailing uncertainty.
Tim Moore, the economics director at S&P Global Market Intelligence, commented on the situation, stating, “June data confirmed a clear loss of momentum for the UK economy during the second quarter of 2023, following a positive start to the year.” He noted that strong cost pressures, weak demand, and uncertainties stemming from the Middle East conflict were the most significant challenges faced by service sector firms.
While the survey indicated that inflationary pressures had eased slightly, they remained substantial. The PMI's gauge of input cost inflation fell to its lowest level since March, although businesses reported that rising salaries and transport costs were still contributing to overall expenses. Companies continued to pass on these costs to customers, but the rate of increase was the slowest observed since February.
The composite PMI, which incorporates manufacturing data, was also revised down to 49.3 from an initial estimate of 49.4. This marks the weakest reading since April 2025 and a decline from 49.7 in May. Additionally, business sentiment regarding the upcoming 12 months has reached its second-lowest point since April 2025. However, there are indications that firms are becoming slightly more optimistic, with hopes for a potential peace agreement between the United States and Iran, as well as increased investment in artificial intelligence.
The employment landscape remains challenging, as hiring has contracted for the 21st consecutive month, marking the longest period of job losses since February 2010. This trend highlights the ongoing struggles within the sector as companies navigate economic uncertainties and shifting market conditions.
As the UK economy faces these challenges, the services sector's performance will be closely monitored in the coming months, particularly in light of the anticipated leadership changes and global economic developments.