UK Services Sector Returns to Growth Amid Ongoing Labour Market Concerns

The UK's services sector has finally returned to growth after two months of contraction. According to the S&P Global UK Services PMI, which rose to 52.1 in July from 48.8 in June, businesses saw a rebound in activity due to higher consumer spending and solid demand for technology services.

The manufacturing output also recorded its strongest increase since September 2024, with new orders increasing for the first time in five months. This suggests that domestic demand is beginning to recover despite ongoing geopolitical uncertainty.

Business confidence has improved for a second consecutive month, reaching its highest level since February on hopes of easing inflation and reduced Middle East tensions. However, the labour market remains a concern, with employment falling for a 22nd straight month, matching the longest period of job losses in the survey's 30-year history.

The slowing input cost inflation to a five-month low provides some relief for businesses, but it is clear that the recovery remains uneven. The UK economy is gaining momentum, but stronger demand has yet to translate into sustained hiring.