General election 2024: Evidence of weakening in economic recovery as campaigning begins

Growth in the UK’s powerhouse services sector has cooled by more than expected to its weakest level in six months, according to a closely-watched survey of businesses.

As campaigning got under way for a general election that is widely expected to be dominated by the economy, the S&P Global UK Composite Purchasing Managers’ Index (PMI) suggested an overall slowing in the pace of business activity.

The index, in which any reading above 50 represents growth, came in at 52.8 for May – down on the 54.1 score achieved the previous month.

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The survey of purchasing managers, which takes in responses from services and manufacturing firms, had been forecast by economists to have been almost flat on April’s figure.

The report said a recovery in factory activity, which recorded its best monthly performance in two years, was more than offset by the weakening of momentum in services which suffered from a slowdown in new orders.

Its authors said the survey data was consistent with gross domestic product (GDP) rising by around 0.3% in the second quarter of the year to the end of June.

The Office for National Statistics has previously indicated an early estimate for growth during the first quarter of the year of 0.6%.

If realised, the PMI prediction for second quarter growth would represent a significant slowdown though it is in line with recent annual forecasts – such as from the Bank of England and International Monetary Fund.

The new year has marked the end of a six-month recession for the UK economy – a downturn that was largely blamed on the effects of interest rate rises by the Bank to tame inflation.

The official rate of inflation is currently just above its target rate of 2% but April’s figure came in slightly hotter than had been expected, prompting financial markets to shift their bets for a first interest rate cut from June to August.

The calling of the election for 4 July means Rishi Sunak’s Conservatives, if that market mood is right, will not benefit at the polls from any cheer over a cut to borrowing costs.

The PMI survey suggested some concerns for the Bank around inflation would be soothed by its findings.

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Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “With companies now reporting the slowest price growth in over three years, and headline inflation falling close to target, the PMI data support the view that the Bank of England will start cutting interest rates in August providing the data continue to move in the right direction over the summer.

“Such speculation of rate cuts has already fed through to improved business confidence, with optimism for the year
ahead lifting higher in May, adding to hopes that the battle against inflation can be won without the UK having
suffered a serious recession.”