The UK services sector recorded its first contraction in more than a year in May, with the S&P Global UK services PMI (Purchasing Managers’ Index) survey showing a reading of 49.3 for the month, down from 52.7 in April. The PMI is a monthly survey of business conditions: any score above 50.0 means the sector is expanding, while anything below 50.0 signals it is contracting.
May’s reading was the first time business activity in services had decreased since April 2025, according to the survey. Data for the report were gathered between 12 and 28 May 2025, capturing sentiment across the sector during a period when the conflict in the Middle East was weighing heavily on business decisions.
How the UK Services PMI May Decline Happened
The dominant driver of the fall was a reduction in new work coming into businesses, which declined for the third month in a row. The survey described this decline as marginal, with some signs of ongoing resilience still visible across the sector. Firms taking part in the survey pointed to worries about the conflict in the Middle East as a key reason customers were either pushing back big spending decisions or cutting back on non-essential purchases altogether.
Export sales also fell in May, linked to uncertain global economic conditions and increasing competition in major markets. Services businesses span a broad range of the UK economy, from hospitality, leisure and travel through to property, financial services and education.
The backdrop to much of this is the effective closure of the Strait of Hormuz since the end of February. The Strait is one of the world’s busiest waterways, and its closure has cut off the transit of key commodities such as oil and fertiliser from the Middle East, sending global prices soaring. UK businesses have felt the knock-on pressure of rising costs squeezing budgets and weakening consumer confidence.
What Businesses and Economists Are Saying
Tim Moore, economics director for S&P Global Market Intelligence, said: ‘Many service sector companies noted that the Middle East conflict had an adverse impact on sales pipelines and general business prospects. Those in the hospitality and transportation sectors typically commented on squeezed discretionary spending and pressure from sharply rising input costs, while professional services firms reported a setback from rising risk aversion among clients.’
Firms were cutting jobs in May at the fastest rate since February, partly in response to higher labour and business costs. Respondents said it was costing more to run their businesses, largely because of higher energy, fuel and transport costs. Mr Moore did point to one area of strength, describing investment in technology services as a ‘bright spot for parts of the service economy’ last month.
Matt Swannell, chief economic adviser to the Item Club, offered a cautious outlook: ‘We think the economy will continue to lose momentum and flirt with recession in the second half of the year. Rising energy bills and a deteriorating jobs market will squeeze households’ spending power further. Meanwhile, tighter financial conditions, elevated costs, and prolonged uncertainty will lead businesses to postpone or cancel some investment plans.’
The services sector is the dominant industry in the UK economy, which makes a sustained UK services PMI May decline a closely watched signal for the broader health of the country’s output. New orders fell for the third consecutive month, and job cuts reached their fastest pace since February, two trends that suggest the pressure on businesses is not easing.
With the Strait of Hormuz still closed and energy costs continuing to rise, the Item Club’s warning about households’ spending power being squeezed further into the second half of the year frames the next few months of PMI readings as a key test of how much resilience remains in the UK economy.
