The United Kingdom’s services sector showed renewed growth in July, reaching its highest output levels since April amid a period of political change and global uncertainty. The sector, which constitutes more than three-quarters of the UK economy, recorded a purchasing managers’ index (PMI) reading of 52.1, up from 48.8 in June and surpassing market expectations of 51.8. A PMI reading above 50 indicates expansion in output, marking the first monthly increase in three months.

The improvement was driven by stronger consumer spending, increased demand for technology services, and a slower rise in input costs after these expenses peaked in April. New order volumes climbed to a five-month high, and some firms reported higher investment levels. In contrast, new business from overseas clients declined for the fifth consecutive month, a trend attributed to ongoing geopolitical tensions following the US-Iran conflict. Companies highlighted that elevated uncertainty linked to the Middle East situation continued to weigh on growth prospects.

Despite job cuts during the month, the rate of employment decline was the slowest since October 2025, reflecting cautious adjustments in workforce levels. The survey, conducted between July 9 and July 29, coincided with both volatile oil prices and the installation of a new government.

Economists noted the improving conditions may signal an easing of previous economic headwinds. Martin Beck, chief UK economist at WPI Strategy, suggested the UK economy may be benefiting from a “modest tailwind” as pressures from high interest rates, elevated energy costs, and political uncertainty begin to subside. He pointed to relatively healthy private sector balance sheets and the potential for households to reduce savings and increase spending as factors underpinning a gradual recovery.

Rob Wood, chief UK economist at Pantheon Macroeconomics, interpreted the PMI increase as a sign the UK economy likely expanded by 0.2% in the third quarter. He also noted indications of softer inflationary pressures and weaker hiring intentions, which could reduce the likelihood of further interest rate hikes by the Bank of England.

Tim Moore, economic indices director at S&P Global Market Intelligence, emphasized the positive outlook stemming partly from hopes of de-escalating Middle East tensions and easing inflation. He pointed out that the rise in input prices in July was the slowest in five months and well below the peak observed in April.

Beck also attributed part of the sector’s growth to shorter-term factors, including a boost to leisure and hospitality from unusually high temperatures and the recent World Cup event. Overall, input cost inflation in the services sector decelerated to its slowest pace since February 2026, while firms raised their own prices at the weakest rate in five months.