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Activity in Britain’s services sector contracted sharply in June for the second consecutive month as the effects of the Iran conflict continued to strain businesses a closely watched survey has shown. The S&P Global Purchasing Managers’ Index for the services sector fell to 48.8 from 49.3 in May marking the lowest level since January 2023 and signalling a clear loss of momentum after a positive start to the year. A reading below 50 indicates contraction in the sector which accounts for around 80 percent of UK economic output according to S&P Global Market Intelligence.
June data confirmed a clear loss of momentum for the UK economy during the second quarter of 2026 following a positive start to the year according to Tim Moore economics director at S&P Global Market Intelligence. The survey showed firms cutting more jobs as new business inflows weakened amid heightened uncertainty from the Middle East conflict. Businesses reported softer demand across both domestic and export markets with the war’s impact rippling through consumer confidence and investment decisions.
The services PMI decline comes after a similar contraction in May extending the downturn beyond initial expectations from earlier forecasts that had pointed to a return to growth. S&P Global figures show the June reading was well below the 50.1 average predicted in a Reuters poll of economists released prior to the data. This marks the sharpest pace of contraction in the sector since early 2023 when post-pandemic recovery challenges were still prominent.
The downturn has been attributed primarily to the fallout from the Iran war which has disrupted supply chains increased energy costs and dampened business sentiment across the services industry. Companies surveyed by S&P Global cited delays in client projects reduced tourism flows and caution among corporate clients as key factors behind the slowdown. The data places additional pressure on policymakers as the Bank of England monitors inflation and growth indicators in the coming months.
World Bank data shows global growth is projected to slow to 2.5 percent in 2026 before firming in 2027-28 as energy supplies recover and trade strengthens with risks skewed to the downside from escalating Middle East hostilities. The UK services contraction aligns with this broader outlook where commodity market disruptions from regional conflicts are amplifying economic headwinds for import-dependent economies. Emerging market and developing economies face the weakest per capita income growth since the pandemic according to the World Bank’s latest assessment.
Firms in the sector reported mounting revenue losses and scaled back hiring plans in response to the prolonged uncertainty. The survey indicated that backlogs of work continued to fall while input price inflation eased slightly but remained above long-term averages. S&P Global noted that the combined output index for manufacturing and services also pointed to an overall economic contraction in June reinforcing concerns about the second-quarter performance.
