Election nerves push UK business growth to 7-month low, PMI shows
2024.06.21 04:47
By David Milliken
LONDON (Reuters) – British businesses are expanding at the slowest pace since the economy was in recession last year, as some companies put big decisions on hold until after July 4’s election, a survey showed on Friday.
Opinion polls show Keir Starmer’s Labour Party is set to return to power for the first time since 2010 as Prime Minister Rishi Sunak’s Conservatives head for a historic defeat.
The S&P Global Composite Purchasing Managers’ Index dropped to 51.7 in June from 53.0 in May, its lowest since November 2023 and below all forecasts in a Reuters poll of economists.
“The slowdown in part reflects uncertainty around the business environment in the lead up to the general election, with many firms seeing a hiatus in decision making pending clarity on various policies,” said Chris Williamson, chief business economist at S&P Global.
Starmer has said he is “pro-business and pro-worker” and wants Labour to be “the party of wealth creation”, but not all businesses are set to benefit.
Norwegian energy giant Equinor has suspended efforts to sell a stake in the giant Rosebank oil development in the North Sea due to political uncertainty.
Labour has pledged to block new oil and gas exploration licences and increase windfall taxes on energy companies.
The slowdown was led by a fall in the services PMI to 51.2 from 52.9, while the smaller manufacturing sector PMI edged up to a two-year high of 51.4 from May’s 51.2.
The figures pointed towards quarterly GDP growth of 0.1%, Williamson said.
On Thursday the Bank of England revised up its growth forecast for the second quarter of 2024 to 0.5% and said business surveys suggested underlying quarterly growth of around 0.25% – weak by historic standards but an improvement on 2023.
The BoE kept rates unchanged but some policymakers said their decision had been “finely balanced” – bolstering economists’ expectations that it will cut rates in August.
However, the PMI data showed businesses raised prices at the fastest pace in four months, and that input costs accelerated due to global shipping bottlenecks, after growing at the weakest pace in more than three years in May.
“While a slowdown in economic growth may prove temporary, should businesses react positively to the policies announced by any new government, the stubbornness of underlying inflationary pressures … still looks somewhat engrained,” Williamson said.
