Britain's services sector returned to growth in July with the S&P Global Services PMI rising to 52.1 from 48.8 in June, marking its highest reading since April and coming in above the preliminary reading of 51.8. According to reports from Reuters, the recovery was supported by stronger domestic demand and easing cost pressures that helped lift business activity. The upward revision also pushed the composite PMI, which combines services and manufacturing activity, to 52.2 from 49.3 in June, moving above the 50 threshold that separates expansion from contraction for the first time since April. As noted by S&P Global, the index of total new work among services firms rose to 50.8 in July from 47.6, the strongest level since February and ending a four-month period of contraction that began after the Iran conflict erupted. Tim Moore, economics director at S&P Global Market Intelligence, explained that "UK service providers moved back into growth mode during July as greater consumer spending and strong demand for technology services helped to boost overall business activity."
The recovery was supported by an improvement in new business, with S&P Global's index measuring total new work in the services sector climbing to 50.8 in July from 47.6 in June, the strongest level since February and ending a four-month period of contraction that began after the Iran conflict erupted. As reported by Reuters, service companies recorded the weakest increase in input costs since February, helped by lower oil and gas prices following a ceasefire in the Iran conflict. The pace at which firms raised prices charged to customers also slowed to a five-month low. According to S&P Global Market Intelligence, firms reported a "general improvement" in market conditions, highlighted by new work, with some companies linking this to positive demand for technology services as well as a "tentative" recovery in consumer spending. As noted by S&P Global, "More supportive market conditions meant that new work picked up for the first time in five months, although the rate of expansion was still sluggish in comparison to historic trends."
Despite the overall improvement, export demand remained under pressure with new export orders declining for a fifth straight month, although the pace of contraction was the slowest during the current period. According to Reuters, the labour market remained weak with the survey's employment index falling for a 22nd consecutive month, matching the length of a decline seen during the global financial crisis nearly two decades ago. However, the pace of job losses was the mildest since October 2025. As reported by S&P Global, the survey's employment gauge dropped for the 22nd consecutive month, equalling a run seen during the global financial crisis almost two decades ago, although it was the softest pace of decline since October 2025. Investing.com reports that "employment in the services sector fell for the twenty-second consecutive month, marking a joint-record duration in 30 years of data collection," with the rate of job losses being the least marked since October 2025. Backlogs of work continued to fall in July, reflecting a sustained lack of pressure on business capacity, leading to another reduction in employment.
Business optimism strengthened further in July, with confidence about activity over the next 12 months reaching its highest level since February. Firms were encouraged by expectations of easing geopolitical tensions in the Middle East and moderating inflationary pressures, supporting a more positive outlook for the year ahead. As reported by Reuters, the stronger-than-expected services data added to evidence that the UK economy regained momentum at the start of the third quarter, providing a positive backdrop for European equities. Around 45% of the survey panel predicted an upturn in business activity over the year ahead, while 15% forecast a reduction, representing the strongest degree of optimism for five months. British stocks gained with the domestically focused FTSE 250 benefiting from expectations of stronger economic activity, while the broader FTéSE 100 also advanced alongside European shares. However, Matt Swannell, chief economic adviser to the Item Club, warned that "the economy is still likely to lose momentum in the second half of this year," adding that "Inflation has probably now passed its low point, with July's 13% rise in the energy price cap kickstarting a series of upward pressures."
