LDN - Business

Election uncertainty pushes UK business growth to 7-month low

[June 21, 2024] By David Milliken

LONDON (Reuters) -British businesses are expanding at the slowest pace since the economy was in recession last year, as some companies put big decisions on hold until after the country's July 4 election, a survey showed on Friday.

Opinion polls suggest Keir Starmer's Labor Party is set to return to power for the first time since 2010 as Prime Minister Rishi Sunak's Conservatives head for a historic defeat.

The S&P Global Composite Purchasing Managers' Index dropped to 51.7 in June from 53.0 in May, its lowest since November 2023 and below all forecasts in a Reuters poll of economists.

"The slowdown in part reflects uncertainty around the business environment in the lead up to the general election, with many firms seeing a hiatus in decision making," said Chris Williamson, chief business economist at S&P Global.

The composite PMI for the euro zone also fell sharply to 50.8 from 52.2, reflecting a big drop in German manufacturing activity and a broad-based fall in business activity in France ahead of snap parliamentary elections in which the far-right is forecast to do well.

Britain's Starmer has said he is "pro-business and pro-worker" and wants Labor to be "the party of wealth creation", but not all businesses are set to benefit.

Norwegian energy giant Equinor has suspended efforts to sell a stake in the giant Rosebank oil development in the North Sea due to political uncertainty.

Labor has pledged to block new oil and gas exploration licenses and increase windfall taxes on energy companies.

June's slowdown was led by a fall in the services PMI to 51.2 from 52.9, while the smaller manufacturing sector PMI edged up to a two-year high of 51.4 from May's 51.2.

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A general view of the financial district of London is seen in London, Britain, October 19, 2016. REUTERS/Hannah McKay/Files/file photo

The figures pointed towards quarterly GDP growth of 0.1%, Williamson said.

On Thursday the Bank of England revised up its growth forecast for the second quarter of 2024 to 0.5% and said business surveys suggested underlying quarterly growth of around 0.25% - weak by historic standards but an improvement on 2023.

Official retail sales data for May, released earlier on Friday, showed a strong rebound after heavy rain caused a slump in April, while separate figures showed consumer confidence rose to its highest since November 2021.

The BoE kept rates at a 16-year high on Thursday but some policymakers said their decision had been "finely balanced" - bolstering some economists' expectations of an August rate cut.

However, the PMI data showed businesses raised prices at the fastest pace in four months, and that input costs accelerated due to global shipping bottlenecks, after growing at the weakest pace in more than three years in May.

"The rebound in PMI price balances suggests inflation pressures may exceed the Monetary Policy Committee's hopes," said Rob Wood, chief UK economist at Pantheon Macroeconomics, who expects the BoE to wait until September before cutting.

(Reporting by David MillikenEditing by Christina Fincher)

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