UK private sector business activity returned to growth in July for the first time in three months. The flash S&P Global services PMI business activity index registered 51.8, up from 48.8 in June and comfortably above the consensus forecast of 49.4. At the same time the composite output index reached 52.1, compared with 49.3 the previous month and a forecast of 49.8.
Readings above 50 signal expansion. These numbers, collected between 9 and 22 July and released on 24 July, mark a clear rebound from the contraction seen in May and June. New business across the private sector edged higher, while business activity expectations for the year ahead improved to their most upbeat level since February.
Manufacturing continued to outperform services. The flash manufacturing output index rose to 53.6 from 52.6, and the manufacturing PMI stood at 52.8. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that manufacturers are now growing faster than services, helped by rising exports.
UK businesses reported stronger activity in July, pointing to a faster pace of economic growth at the start of the third quarter. Hospitality companies saw demand boosted by good weather, the FIFA World Cup and more domestic holidays, as high costs and uncertainty continued to deter some foreign travel. However, overall services growth remained lacklustre amid cost-of-living pressures. Unusually for recent years, manufacturing is now growing faster than services, buoyed by rising exports.
The data offer evidence that entrepreneurial decision-making and responsiveness to market signals can sustain momentum even when external headwinds persist. Input price inflation moderated for the third month running and recorded its smallest increase in five months, helped by lower oil prices in the first half of the period. Yet cost pressures remain elevated, partly linked to earlier government policies and ongoing supply chain strains from the Middle East.
Private sector employment fell for the 39th successive month. Williamson observed that higher costs, including those stemming from the Autumn 2024 Budget, continue to weigh on hiring. Business optimism improved during the survey window, reflecting some relief at reduced geopolitical tensions and cheaper oil, though he warned that recent flare-ups in the Middle East mean any sustained cooling is not guaranteed.
Market implications
These PMI readings will be scrutinised by the Bank of England as it weighs the case for holding interest rates steady. The combination of firmer activity, moderating input costs and persistent employment weakness points to an economy where private enterprise is finding its footing without requiring additional state stimulus. The final July figures are due in early August and will offer a fuller picture.
