The UK’s vital services sector contracted in April for the first time since October 2023, as businesses grappled with growing uncertainty sparked by international trade tensions and sluggish overseas demand.
According to the latest S&P Global UK Services Purchasing Managers’ Index (PMI), the sector scored 49.0 in April, down sharply from 52.5 in March. The figure not only fell below the critical 50.0 threshold that separates growth from contraction but also marked the weakest performance for the sector in over two years. Economists had forecast a reading of 49.9, but the data released on Tuesday revealed a more pronounced slowdown.
The downturn has been linked to rising concerns over global trade barriers, particularly after a recent wave of tariff announcements by the United States. The uncertainty surrounding the geopolitical landscape has led to a drop in overseas orders and a general air of caution among service-sector clients.
Tim Moore, economics director at S&P Global Market Intelligence, noted: “UK service sector output slipped into contraction for the first time in one-and-a-half years as heightened business uncertainty weighed on order books during April. Export conditions were particularly weak, with new business from abroad falling to the greatest extent since February 2021.”
Tariff tensions bite
The latest figures arrive in the wake of new US tariff announcements made earlier this month, which, while largely targeting goods, have had ripple effects across global markets. Though most services are technically exempt from direct import taxes, the broader economic impact of the tariffs has prompted many companies to reassess their expenditure, according to the survey.
Moore added that firms operating in the UK’s financial and tech sectors were especially cautious, citing “risk aversion and delayed spending decisions among clients” as a key contributor to the slump.
The services sector – which includes businesses in hospitality, transport, retail, banking, and IT – makes up around 80% of the UK’s total economic output. As such, any sustained decline could have significant implications for the country’s overall economic growth prospects.
Weak overseas demand
One of the most concerning trends outlined in the April report was the continued fall in new business, particularly from international clients. Companies surveyed reported the weakest levels of new work from abroad in over four years, pointing to a sharp reduction in demand across global markets.
This decline in overseas business was cited as a primary factor behind the overall contraction, even as domestic demand conditions remained fragile. “Businesses continued to report unfavourable domestic demand conditions,” the report stated, “but stressed that a marked decline in overseas markets was the main cause of recent weakness.”
More Read
Hiring cools
Reduced workloads and a drop in new business also translated into more subdued employment activity across the sector. Hiring intentions were tempered by concerns over future demand, with many firms opting to hold off on recruitment until market conditions become clearer.
April’s data marks the third time in four months that new business volumes have fallen, indicating an underlying softness that could persist unless global trade conditions stabilise.
Looking ahead
Analysts suggest that unless there is a marked shift in trade policy or a resolution to ongoing tariff disputes, the services sector may face further challenges in the months ahead. The Bank of England is set to release its latest economic forecasts later this week, and investors will be watching closely for signs of a change in interest rate strategy in response to the cooling service economy.
With international markets in flux and businesses adopting a wait-and-see approach, it remains uncertain whether this contraction signals a temporary blip or the start of a more sustained slowdown. For now, the message from service firms is clear: caution reigns, and confidence is wavering.
