Rapid Deceleration Observed in UK Service Sector Orders Following Liz Truss' Arrival as Leader
UK Services Sector Experiences Fastest Decline in Orders Since 2022
The UK's services sector, which accounts for around 80% of the country's total gross value added (GVA), experienced the fastest rate of decline in new orders since November 2022 in July 2025. This decline followed the period since the Liz Truss mini-budget in 2022.
The Services PMI, a measure of business activity within the sector, dropped to 51.8 in July from 52.8 in June, indicating a significant slowdown in growth. Total new work fell at the fastest rate since November 2022, and export sales also decreased.
Impact on the UK Economy
The slowdown in services orders and employment contributes to subdued business investment and consumer spending, crucial drivers of UK economic activity. The Bank of England views these developments as a risk to growth and inflation dynamics, with inflation in services still elevated despite moderating wage growth.
The persistence of services inflation above euro area levels signals ongoing price pressures in the sector. The services sector weakness and employment cuts have influenced monetary policy expectations, with market anticipation of a Bank of England interest rate cut from 4.25% to 4% to support growth amid these headwinds.
Future Prospects
Although business activity rose for a third consecutive month, subdued client confidence and ongoing global uncertainties suggest a fragile recovery. Business confidence improved slightly for the second month, showing cautious optimism that activity may pick up over the next year despite current challenges.
Wage growth is expected to slow further by the end of 2025, which could ease cost pressures on services inflation but also limit consumer spending capacity. The Bank of England highlights uncertainty around the future path of services inflation and economic growth, contingent on how wage dynamics and administered price changes evolve.
Notable Observations
- Respondents in S&P Global's survey of 650 service sector companies suggested clients were less confident about the global economy and their own business prospects.
- Input price inflation has slowed to its lowest level so far this year.
- Services firm bosses cited worries of higher payroll costs as a factor hindering recruitment.
- The UK's services sector orders have fallen at the fastest rate since Liz Truss' mini-budget in late 2022.
In summary, the fastest decline in UK services orders since late 2022 reflects continuing economic headwinds post the Liz Truss mini-budget era, with repercussions for growth, inflation, and employment. Policymakers are closely monitoring these developments to calibrate monetary policy amid fragile domestic and external conditions.
- The ongoing decline in UK services orders could have a significant impact on the country's economy, particularly in terms of business investment and consumer spending, two crucial drivers of economic activity.
- The slowdown in the services sector, coupled with high inflation in services, has led to expectations of a potential interest rate cut from the Bank of England to support growth, raising questions about future taxation and finance policies in the business sector.
