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Britain’s Service Sector Loses Its Footing as War and Costs Chill Demand

In May, Britain’s service economy — that vast house of hotels, trains, classrooms, offices and late-booked holidays — slipped out of growth for the first time since April 2025.

S&P Global’s UK services PMI fell to 49.3 from 52.7 in April, crossing below the 50 mark that separates expansion from decline. The retreat was tied mainly to a third straight monthly drop in new business, though the easing was described as slight rather than severe.

The strain showed most plainly where spending is easiest to postpone. Hospitality, leisure and travel businesses reported customers deferring major purchases and cutting non-essential outlays as the war in Iran darkened confidence. Export sales also weakened, reflecting both fragile global conditions and fiercer competition in key markets.

The conflict’s effects have spread far beyond the region. Since the end of February, the effective closure of the Strait of Hormuz has disrupted one of the world’s busiest shipping routes, choking flows of oil and fertiliser and pushing prices sharply higher. In Britain, those costs have filtered into energy, fuel and transport bills, tightening household budgets and depressing sentiment.

Employment in the sector fell at its fastest pace since February as firms responded to higher labour and operating costs. One rare brighter note came from continued investment in technology services.

Economists now expect growth to fade further and recession to loom in the second half of the year.

Posted on 4 June 2026