UK business activity shrinks as economy faces ‘perfect storm’ - business live

From 1h ago 09.49 BST UK business activity contracts in May as economy faces 'perfect storm' British businesses reported their first in output in over a year in May, as conflict in the Middle East and political uncertainty in the UK hit activity in the services sector. The purchasing managers’ index (PMI) by S&P Global dropped to 48.5, well below an expected 51.6 and under the 50 threshold that marks the difference between expansion and contraction. The decline was driven by a fall in the services sector, where the reading slumped to 47.9, compared with expectations of 51. It was its worst performance since January 2021, when the economy was dealing with the Covid-19 pandemic. Chris Williamson, chief business economist at S&P Global Market Intelligence, said: double quotation mark The UK economy is facing a perfect storm as rising political uncertainty adds to the growing impact from the war in the Middle East. Businesses are reporting falling output, surging inflation, supply shortages and job cuts in May. The May PMI data indicate that the economy contracted at a 0.2% quarterly rate, representing a marked contrast to the robust growth seen earlier in the year. The blame lies first and foremost with the war in the Middle East, though companies are also noting that domestic politics are taking an increasing toll, driving uncertainty higher, in turn deterring spending, hiring and investment. Things could well get worse in the coming months, as we have been seeing some support to manufacturing from precautionary stock building which will inevitably fade once warehouses are full. Just as the economy shows signs of sinking into decline, prices are surging higher to herald a marked upturn in inflation in the months ahead as these costs pass through to consumers. This combination of a faltering economy and spiking price pressures leaves the Bank of England in a major quandary, facing the growing need to hike rates to help contain inflation but thereby adding to recession risks.” Share Updated at 09.52 BST 5m ago 11.09 BST British factory orders shrink at fastest rate since 2020, CBI says Some more gloomy figures this morning – British factory order books were at their weakest in May since September 2020, according to a survey by the Confederation of British Industry. Its monthly balance of total new orders slid to -41 in May from -38 in April. Cameron Martin, senior economist at the CBI, said: double quotation mark Against an increasingly uncertain global backdrop, the conflict in the Middle East is feeding through to higher energy costs and renewed supply chain disruption, adding another layer of challenges for manufacturers, who are already grappling with weak demand. Share Updated at 11.09 BST 46m ago 10.28 BST Business activity across the eurozone also shrank in May, at its fastest pace in two and a half years. The PMI index fell to 47.5 in May from 48.7 in April, S&P Global found, once again driven by a slump in the services sector. Williamson said the data showed the eurozone economy taking an “increasingly severe toll from the war in the Middle East”. double quotation mark Job losses are also starting to become worryingly widespread as business confidence in any swift turnaround in the adverse economic climate fades further. The service sector is being hit especially hard by the surge in the cost of living created by the war, notably via the demandsapping impact of higher energy prices. While there has been some support to manufacturing from precautionary stock building, this boost is starting to fade, with demand for both goods and services now in decline. The region’s supply shock from the war is also intensifying, as indicated by increasingly widespread supply chain delays. Supply shortages threaten not only to constrain growth in the coming months but also have the potential to add further upward pressure to inflation. The rise in the survey’s price gauges already hints at inflation running close to 4% in the coming months which, combined with the growing signs of the region slipping into an economic downturn, creates a deepening dilemma for policymakers.” Share 1h ago 10.05 BST Rob Wood, chief UK economist at Pantheon Macroeconomics, says the sharp downturn in output means the Bank of England is more likely to hold interest rates in July. double quotation mark The [monetary policy committee] now face a sharp trade-off between weaker growth and still rampant inflation pressure. The manufacturing price balances tend to be far more sensitive to oil prices than actual inflation is so we ignore those for now. The services output price balance eased to 60.6, from 62.9 in April, consistent with underlying services inflation accelerating to over 6.0% year-over-year from its latest reading of 3.7%. As a comparison, the services output price balance rose by 5.2 points between January and May 2025, almost the same as between the same months in 2022, suggesting strong pass-through of energy costs to underlying in