UK services sector contracts sharply as Iran war drags economy

Britain’s dominant services sector shrank for a second consecutive month in June, with the S&P Global Purchasing Managers’ Index falling to 48.8, the steepest decline since early 2023. The downturn follows a month of stagnant or falling GDP, as the ongoing US‑Israel‑Iran conflict weighed on demand, raised energy costs and lifted input‑price pressures. Companies cited uncertainty over a forthcoming change of prime minister, fiscal policy and global inflation as key concerns. Despite a modest easing of inflation, cost pressures remained high and hiring fell for the 21st month, marking the longest streak of job losses since 2010.

The broader UK economy showed little to no growth in May, with analysts expecting either flat or slightly negative output. While some sectors such as construction and manufacturing showed modest gains, the services industry—accounting for most of UK output—remained sluggish. Occasional boosts from retail promotions, warmer weather and the FIFA World Cup were noted, but overall economic momentum stayed weak.