The UK’s services sector showed signs of recovery in May, bouncing back from a contraction in April that was influenced by concerns regarding U.S. President Donald Trump’s tariffs. According to a survey released on Wednesday, the S&P Global Purchasing Managers’ Index (PMI) for the services sector increased to 50.9 in May from 49.0 in April, surpassing an earlier flash estimate of 50.2.
This positive trend also impacted the composite PMI, which incorporates the smaller manufacturing sector, pushing it above the crucial threshold of 50 that indicates growth rather than contraction. Tim Moore, the economics director at S&P Global, noted that diminishing worries about U.S. tariffs, recovering global financial markets, and heightened client confidence contributed to this output growth.
Notably, the sharp decline in export orders experienced in April reversed significantly, and new orders overall decreased at a slower rate than the previous month. This contributed to a rise in expectations for future output, reaching the highest levels since October.
Despite this growth in the services sector, the Bank of England cautioned that the economy is expected to slow down, partly due to negative trends reflected in various business surveys. The PMI data highlighted ongoing pressure from rising labor costs, driven by a nearly 7% increase in the minimum wage and an uptick in employers’ national insurance contributions.
These changes disproportionately affect businesses employing many lower-paid or part-time workers. Moreover, firms have been reducing staff for the last eight months, primarily by not filling vacancies left by departing employees, although the rate of reduction in May was the lowest in six months.
While businesses reported slower cost increases compared to April, attributed mainly to labor expenses, the rate of price increases charged remained subdued due to heightened competitive pressures. This scenario may alleviate some concerns for the Bank of England regarding rapid wage growth affecting their target for inflation at 2%.