What’s going on here?
UK business growth has reached a seven-month low due to uncertainty surrounding the upcoming general election, reflected in the S&P Global Composite PMI dropping to 51.7 in June from 53.0 in May.
What does this mean?
With the S&P Global Composite PMI hitting its weakest mark since November 2023, the UK economy is bearing the brunt of pre-election jitters. Companies are pausing major decisions amid the potential shift from Prime Minister Rishi Sunak’s Conservative Party to Keir Starmer’s Labour Party – who haven’t held power since 2010. The services sector, in particular, is dragging with its PMI dipping to 51.2 from 52.9, while manufacturing shows a slight uplift with a PMI of 51.4, up from May’s 51.2. Top economist Chris Williamson points to these figures suggesting a modest 0.1% quarterly GDP growth. The Bank of England has adjusted its Q2 2024 growth forecast to 0.5%, but business surveys hint at an underlying growth rate closer to 0.25%.
Why should I care?
For markets: Navigating the waters of uncertainty.
The pre-election landscape is raising alarm bells for businesses, driven by higher input costs and global shipping delays. The Bank of England’s decision to hold interest rates steady highlights the delicate balance policymakers must strike to support growth without fueling inflation. Investors should watch sectors sensitive to policy changes, especially as Labour’s proposed policies on oil and gas could drastically reshape the energy market.
The bigger picture: Global economic shifts on the horizon.
The UK’s election is a matter of global economic interest. Norwegian energy company Equinor’s decision to halt the sale of a stake in the Rosebank oil development in the North Sea shows how political uncertainty can deter international investments. With Labour’s intent to block new oil and gas licenses and impose higher windfall taxes, international businesses are being cautious, potentially influencing global energy supplies and prices.