UK PMI Composite Falls Into Contraction as BoE Faces “Major Quandary”

UK business activity deteriorated sharply in May as the economy was hit by a combination of Middle East-related energy pressures and rising domestic political uncertainty. Flash UK Composite PMI Output Index plunged from 52.6 to 48.5, its lowest level in 13 months and firmly back into contraction territory. The decline was driven overwhelmingly by the services sector, where Business Activity Index collapsed from 52.7 to 47.9, marking a 64-month low. Manufacturing activity remained comparatively resilient, with Manufacturing PMI holding steady at 53.7 and Manufacturing Output Index edging up to a three-month high of 52.4.

S&P Global’s Chris Williamson warned the UK economy is facing a “perfect storm,” with businesses increasingly reporting falling output, supply shortages, rising inflation pressures, and job cuts. According to Williamson, the latest PMI data point to the economy contracting at roughly a -0.2% quarterly pace in Q2, a sharp reversal from the stronger growth seen earlier this year. He noted that while the Middle East conflict remains the primary drag on activity through higher energy costs and supply disruptions, domestic political uncertainty is also increasingly damaging business confidence and investment decisions.

The survey also reinforced growing stagflation concerns for the Bank of England. Williamson warned that prices are “surging higher” even as economic activity weakens, with precautionary stockpiling still temporarily supporting manufacturing output. However, he cautioned that this support will likely fade once inventories are rebuilt.

The combination of slowing growth and rising inflation leaves the BoE in what Williamson described as a “major quandary,” as policymakers face growing pressure to contain inflation without pushing the economy deeper toward recession.

Full UK PMI flash release here.