UK services firms report slower growth and weaker inflation, PMI shows

Published On : 06/05/2024

By David Milliken

LONDON (Reuters) – Growth among Britain’s services businesses eased in May from April’s 11-month high and inflation pressures dropped to their lowest in three years, a survey showed on Wednesday, potentially easing the way for a Bank of England rate cut later this year.

The S&P Global UK Services Purchasing Managers’ Index touched a six-month low of 52.9, down from April’s 55.0, in line with an earlier provisional reading.

The composite PMI – which wraps in the manufacturing PMI released on Monday – eased to a two-month low of 53.0 from April’s one-year high of 54.1.

S&P said the data was consistent with gross domestic product growth of 0.3% in the second quarter of 2024, half the pace of the first quarter although an improvement on the shallow recession in the second half of 2023.

The data is unlikely to bring much comfort to Prime Minister Rishi Sunak, who polls suggest is on course for a heavy defeat in a national election on July 4. But it is likely to boost the BoE’s confidence that the time for a rate cut is nearing.

Output prices in both the services sector and the composite measure rose at the slowest pace in more than three years.

“That’s now three months on the trot that selling price inflation in the service sector has eased – this will be very encouraging to the (BoE’s) Monetary Policy Committee and suggests the trajectory of services prices is moving in the right direction,” S&P principal economist Joe Hayes said.

Until recently, many economists had expected the BoE would cut rates this month but financial markets now do not price in a rate cut before August at the earliest – partly due to persistent inflation in the United States as well as Britain’s continued high pace of services price inflation and wage growth.

Despite the slowdown, S&P noted that price pressures remained above pre-COVID levels.

Businesses were “strongly optimistic” about the outlook, which S&P said reflected hopes of lower interest rates as well as a pick-up in growth.

Staffing levels rose slightly, in contrast to the weak picture in official data.

(Reporting by David Milliken; Editing by Christina Fincher)

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