UK private sector activity contracts for second month, raising fears of economic slowdown

The private sector in the United Kingdom has shrunk for the second month in a row in May, providing fears that the start of the strong economy for this year can be reversed in the second quarter.

The S & P Global/CIPS for purchases (PMI) – a main measure of economic health – rose slightly to 49.4 in May of 48.5 in April, but remained less than the decisive 50 threshold that separates growth from shrinkage. It represents the second most severe reading in the past 17 months and confirms the state of fragile commercial conditions.

The PMI numbers come just weeks after the official data showed that the economy grew by 0.7 percent in the first quarter, which is the fastest pace in two years. But this momentum seems to stop amid high trade uncertainty, high costs of employees and continuous inflationary fears, which raises the possibility of a possible reflection in the Q2.

While the UK Services Sector-which represents more than three quarters of the economy-showed a modest recovery, with the notes of the Procurement Manager Index reaches 50.2 out of 49.0, the manufacturing sector continues to deteriorate. Its Procurement Manager Index has decreased to 45.4, its lowest level for two months, indicating a sharp decrease in directing since October 2023.

Manufacturers were particularly affected by the trade environment after Britain’s exit from the European Union, the delay in investment decisions, and unnecessary spending discounts. The report found that the total production of manufacturing decreased as soon as possible in seven months.

“Although the most brighter news about customs tariffs and trade has helped restore some confidence between companies, feelings about the possibilities next year are still defeated,” said Chris Williamson, S& P Global, said:

PMI data also indicates an aggressive wave of job cuts, especially in manufacturing, as companies struggle with high wages and taxes in the wake of a rise in April to national insurance contributions and the minimum wage.

Despite the recent improvement in commercial morale-with the assistance of the UK partial trade agreement with the United States and the 90-day Trump administration’s suspension of the new definitions-it seems that these developments have not yet been translated into an investment in the short term or the employment of confidence.

Williamson added: “Fears were exacerbated by poor demand due to the high costs of employees,” Williamson added.

Economists at Capital Economics warned that PMI readings for the month of April and May are in line with 0.2 percent domestic product contraction in the second quarter, which represents the worst quarterly performance since late 2023.

The results come amid wider signs on economic fragility throughout Europe. The participating managers index in the eurozone slipped in a negative area this month, where it decreased from 50.4 to 49.5, highlighting common pressures through advanced economies.

While companies remain optimistic that modern improvements in global trade conditions can provide some comfort in the second half of the year, the latest data of the Procurement Manager Index adds to the increasing list of opposite winds facing UK growth – including high input costs, cautious consumer spending, and the remaining geopolitical risks.

While the government is preparing to review the upcoming spending, and the Bank of England informs interest rate decisions, the latest numbers may enhance the target support calls to protect jobs and stimulate investment, especially in the faltering industrial sector.