Elections stifle growth, but UK still beats rivals

A closely watched business survey found that UK economic growth slowed this month as companies put off making big decisions after the election.

But despite activity falling to a seven-month low, UK private sector output remained ahead of European rivals.

According to S&P Global, the UK’s score fell from 53 in May to 51.7 last month. A reading above 50 indicates growth.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The June flash PMI survey data signaled a slowdown in the pace of economic growth, with GDP now growing at a sluggish quarterly rate of 0.1 percent.

“The slowdown partly reflects the uncertainty surrounding the business environment ahead of the general election, with many companies anticipating a break from pending decision-making on various policies.”

It comes after the British economy recovered earlier this year following a recession that hit at the end of 2023.

The economy grew at a “gangbusters” pace of 0.6 percent in the first quarter of 2024.

And the Bank of England this week upgraded its outlook for the second quarter to 0.2% to 0.5%. Inflation fell to 2% and the outlook was boosted by the possibility of an upcoming interest rate cut.

However, yesterday’s PMI reading showed a slowdown in June, with the services sector reading falling to 51.2 from 52.9.

The small manufacturing sector figure rose to 51.4, a two-year low. Analysts have said that recovery will take place next month.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “The fall in PMI is an election-related blip and the UK is growing well.”

Across the euro zone, the PMI reading fell three months to 50.8 in June from 52.5 in May.

This reflected a sharp drop in German industrial activity and a slowdown in France, which recorded a second straight month of decline in output to 48.2. Germany’s economic activity fell to 50.6.

ING’s Bert Kolijn said the eurozone’s PMI reading was a “reality check” that showed the group’s economic recovery was “not a Cinderella story”.

“With the risk of a euro rebound around the French elections and higher rates still seeping into the economy, this is no time for complacency,” he said.

“Eurozone economy is doing better than in 2023, but headwinds remain.”

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