The UK’s private sector activity contracted for the second month in a row in June 2026, as protracted supply chain disruptions from the Iran War collided with a record-breaking June heatwave to dampen consumer demand.
The latest Purchasing Managers’ Index (PMI) released by S&P Global showed a services reading of 48.8 in June, falling from 49.3 in May, firmly in contraction territory below the 50.0 neutral mark that separates growth from decline.
The 0.5 point fall took the index to its lowest level since the start of 2023, capping a quarter in which the UK economy lost much of the momentum it had carried into the year.
The wider Composite Output Index, which combines services and manufacturing, slipped to 49.3 from 49.7, a second straight month below the neutral mark and the weakest reading since April 2025.
Tim Moore, economics director at S&P Global Market Intelligence, said: “June data confirmed a clear loss of momentum for the UK economy during the second quarter of 2026, following a positive start to the year.
“Strong cost pressures, lacklustre demand and business uncertainties arising from the Middle East conflict were the most prominent themes highlighted by service sector firms in June.”
In London, where the service industries account for an overwhelming share of the city’s output, that decline has been felt acutely by consumer-facing businesses.
Bailey Bellua, 20, is a supervisor at a long-standing Caribbean restaurant in Soho, London.*
She said trade had slipped over several years as local demand thinned, with office workers who once drove business now working from home and bringing their own food.
“A lot of locals are working from home and bringing in lunches, so local people aren’t coming in as much,” she said, adding that the restaurant now relies heavily on tourists rather than repeat customers,” she said.
“Britain’s not where it used to be. You have such big consumerism, but then when you’re actually standing in business, you’re not feeling it.”
Echoing the report’s findings, Bellua has also noticed a fall in activity this June compared to previous years.
She said: “The heatwave is affecting it. People eat less, and more people are coming in later in the day for drinks or food.”
The restaurant, which normally trades until 9pm, has at times closed as early as 7pm “because no one comes in”.
While some analysts expected a lift in demand for the hospitality sector due to the World Cup, Bellua’s experience point instead to a broader retreat in socialising.
“No one’s going out anywhere. No one is socialising,” she said. “Everywhere that has brunches is doing deals because no one’s going out.”
New work received by service sector companies also fell for the fourth consecutive month, with the rate of decline the fastest since November 2022.
According to S&P Global, respondents to the PMI survey have widely linked this drop to the Iran War weighing on client confidence, alongside domestic political uncertainty as the country prepares for its sixth leadership change in ten years.
That strain has fed through to jobs, as employment across the service economy fell at the sharpest rate since February, with many businesses citing redundancies or deciding not to replace staff.
For smaller operators, that pressure is reflected in the form of thin staffing sheets rather than formal redundancies.
Bellua said her restaurant now runs on just three people, with staff stretched across four to six days a week.
She added: “People are coming in person asking for a job, which we never used to see, but we just don’t have the finances to hire more people.
Instead, that money is going towards keeping the restaurant open amid higher supply chain costs.
“The costs have been rising and we haven’t been able to action [it],” pointing to increases in business rates and the cost of stock, with suppliers charging more than before as higher gas prices elevate transport and production costs.
Despite this downturn, Moore notes that business optimism had improved slightly from May, buoyed by hopes of a durable US-Iran ceasefire.
But for businesses on the ground, that caution is more existential. After 26 years in Soho, Bellua said her restaurant expected to close at the end of the summer.
“This is our last year,” she said. “There’s just not enough going on.”
If business conditions continue their downward trend, stories like Bellua’s may become increasingly common, with small and medium-sized businesses bearing the brunt.
Andy Burnham has pledged to cut business rates by 20% for pubs, clubs, and music venues, but the Real Rates Reform Alliance has argued that this isn’t enough, calling instead for a 2% tax on all online sales, which would allow a 37% cut in business rates for bricks and mortar firms.
The PMI is a keen indicator of the health and confidence of private sector activity. The headline manufacturing figure is a weighted average of five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%). The services and composite headline figures, by contrast, are diffusion indices tracking the month-on-month change in business activity.
Featured image credit: AXP Photography via Pexels
*Bellua, who is related to the owner of the restaurant, requested it not be named.
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