UK business confidence deteriorates to worst since February 2025

(Alliance News) - UK business confidence worsened in June, with a high proportion of companies expecting a contraction in output over the next 12 months, data published by S&P Global showed on Friday.

UK business expectations deteriorated to their lowest level since February 2025, as companies indicated a growing aversion to expand their workforce and capital investment.

Net optimism towards private sector output over the next 12 months declined to plus 26% in June from plus 36% in February, and the worst since February 2025.

"This was partly driven by a sharp rise in the proportion of service sector firms anticipating a fall in activity, sending confidence in this sector down to its joint lowest since October 2022," S&P Global said.

Manufacturing production forecasts in the UK weakened. However, the net sentiment level stood at plus 38%, much higher than in services.

Service sector firms projected the smallest rise in selling prices for more than five years in June, amid fears that weak discretionary spending and client fee pressure will constrain margins, S&P Global said.

Service providers were less optimistic about profits over the coming 12 months than manufacturers.

David Owen, principal economist at S&P Global Market Intelligence, said: "Both main UK sectors reported a drop in confidence since the previous business outlook survey – conducted in February prior to the Middle East conflict – but the decline in the services sector was the most striking.

"Net activity expectations fell by 10 percentage points, driven by a rise in the proportion of services firms anticipating a contraction in output over the next 12 months to the highest on record besides October 2008 [during the] global financial crisis and October 2022 [amid the UK government's] 'mini-budget'."

Meanwhile, the S&P Global business outlook survey signalled that global business confidence fell to its worst level since late 2022 amid the war between the US and Iran. That is despite a more buoyant outlook in the US economy.

S&P Global said: "Most of the 12 economies for which comparable data are available saw sentiment fall, the only exceptions being the US and Spain, the former recording the strongest optimism for two years.

"Marked reductions in confidence were seen across the eurozone as a whole, as well as in the UK and Japan. Emerging markets sentiment was also weaker."

Worldwide employment expectations deteriorated to the worst since the Covid-19 pandemic.

Andrew Harker, economics director at S&P Global Market Intelligence, said: "Anecdotal evidence from companies suggests that inflation was central to the less optimistic overall outlook.

"While the more positive news from the Middle East in recent weeks has helped to bring down oil prices and leave inflation expectations broadly back to the levels seen earlier in the year, the impacts of the spike in inflationary pressures seen following the outbreak of war on demand and business activity are set to last longer, in turn weighing on jobs."

The data were collected in June, before the US on Tuesday resumed strikes on Iran which has sent oil prices higher again.

Harker added: "The outlook for employment is bleak, with only the height of the Covid-19 pandemic seeing lower hiring plans since these business outlook figures were first available in late-2009. As the second half of the year gets underway, firms will be hoping for a more stable operating environment that will be more conducive to growth."

The global business outlook survey for worldwide manufacturing and services is produced by S&P Global and is based on survey data from around 12,000 manufacturers and service providers. The data were collected between June 10 and June 26.

By Tom Budszus, Alliance News slot editor

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