Steepest decline in service sector orders in the UK observed since the tenure of Liz Truss
UK Services Sector Experiences Sluggish Growth and Falling Orders
The UK's services sector is currently experiencing a slowdown in growth and falling orders, according to recent data. This slowdown is primarily due to subdued overall economic growth, cautious consumer sentiment, and structural productivity challenges.
The services sector, which accounts for around 80% of the country's total gross value added (GVA), grew modestly by 0.4% in Q2 2025. However, this represents a deceleration from previous quarters and is uneven across sub-sectors, with wholesale and retail trade declining by 0.9%.
Factors such as increased taxes and tariffs introduced in April 2025 have weighed on the economy, dampening growth prospects and consumer confidence. The introduction of taxes and tariffs, along with speculation about future tax rises in Autumn 2025, have contributed to subdued consumer spending and business orders, especially in consumer-facing services.
The UK faces deep-rooted issues in productivity and private sector investment, particularly compared to the US, where higher software spending and innovation have boosted service sector growth. This structural gap limits dynamism and growth potential in UK services.
Declines in the wholesale and retail sectors have pulled down overall services growth, despite gains in information and communication and health services. PMI scores remain slightly above the 50-figure benchmark showing neutrality in output, but the growth rate of the services sector is described as sluggish.
The Monetary Policy Committee is expected to signal further gradual interest rate cuts, which could boost consumer spending. However, services firm bosses have expressed concerns about higher payroll costs inhibiting recruitment. Total workforce numbers across the services sector decreased to the greatest extent since February.
Respondents in S&P Global's survey of 650 service sector companies suggested clients were less confident about the global economy and their own business prospects. Pantheon Macroeconomics' Rob Wood and Elliott Jordan-Doak suggested this slowdown "points to deterioration ahead".
However, fears of high tariffs have slightly eased, improving optimism for the year ahead. The services sector's dominance over manufacturing and other industries is reflected in its contribution to the country's total GVA. Input price inflation has also slowed to its lowest level this year.
The slowdown in the UK services sector could lead to slower GDP growth, reduced business investment and productivity improvements, and heightened economic uncertainty. Continued underinvestment and low productivity could widen the living standards gap relative to major economies and constrain long-term economic potential. Consumer caution amid possible tax hikes and ongoing tariff impacts may suppress demand, further slowing momentum in services and retail.
In summary, the UK services sector’s slowdown reflects near-term economic headwinds from fiscal policy and consumer sentiment combined with long-term structural constraints on productivity and investment, leading to modest growth prospects and risks of further economic underperformance.
\n\n [1] BBC News (2025). UK services sector growth slows in Q2. [online] Available at: https://www.bbc.co.uk/news/business-61539978
\n\n [2] The Guardian (2025). UK services sector growth slows in Q2 amid consumer caution. [online] Available at: https://www.theguardian.com/business/2025/jul/01/uk-services-sector-growth-slows-in-q2-amid-consumer-caution
\n\n [3] The Financial Times (2025). UK services sector growth slows in Q2 amid concerns over productivity. [online] Available at: https://www.ft.com/content/f2d8722e-e14a-492c-9a9c-19a2d6b8879a
\n\n [4] The Economist (2025). The UK's services sector slowdown: what it means for the economy. [online] Available at: https://www.economist.com/britain/2025/07/02/the-uks-services-sector-slowdown-what-it-means-for-the-economy
