Election casts shadow over UK business growth

Lingering doubts over the general election and the strength of UK markets led to weakened economic data for the service sector in May.

Election casts shadow over UK business growth

The latest service sector PMI from IHS Markit revealed a slowdown in business activity in May after first hitting a four-month peak in April with the index down from 55.8 to 53.8 last month.

Optimism among businesses also faltered and is below average ahead of voters hitting the polls on Thursday.

Less than half (44%) of those surveyed said they expected business activity would increase in the year ahead and 8% forecast business activity would fall.

Anecdotal evidence from businesses suggested the general election had delayed decision-making leading to softer new business growth, which had been amplified by squeezed household budgets and heightened economic uncertainty.

Despite slowing business activity, IHS Markit’s chief business economist Chris Williamson suggested the economy had gained some momentum in the second quarter of the year.

“The three PMI surveys are running at levels that are historically consistent with GDP growing at a robust 0.5% rate, albeit with the slowing in May posing some downside risks to the near-term outlook,” he said.

“Optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households.”

The data did reveal the tenth month of sustained job creation and followed the World Bank’s decision to upgrade expectations for UK growth this year from 1.3% to 1.7%.

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