Back above the expansion line

The UK services sector returned to growth in July, with S&P Global’s headline business-activity index reported at 52.1, up from 48.8 in June. A reading above 50 means that more surveyed firms reported an increase in activity than a decline. It does not translate directly into the same percentage change in economic output, but it is a closely watched indicator of momentum in the sector that makes up most of the UK economy.

Orders and confidence improve

New business increased slightly after weakening in the previous month. Companies also became more optimistic about the year ahead, with 45% expecting activity to rise and 15% forecasting a decline. Respondents pointed to improved domestic demand, new products and expectations of lower interest rates. Consumer-facing businesses also benefited from favourable weather and events that encouraged spending. Export demand remained weaker, showing that the improvement was not evenly distributed. Services firms continue to face uncertainty from global trade conditions, geopolitical disruption and uneven growth among major partners.

Jobs still fall

Employment declined again, although the reduction was the least severe since October 2025. Firms have been cautious about hiring as wage costs, taxes and uncertain demand weigh on staffing decisions. That creates a mixed picture. Businesses are reporting more activity and stronger confidence, yet many are still trying to operate with smaller workforces. Productivity gains can explain part of that gap, but continued job losses would eventually limit household spending and weaken the recovery.

Cost pressures ease

Input-price inflation slowed to its weakest level since February. Lower cost pressure can help margins and reduce the need for businesses to raise prices, although energy, wage and imported-cost risks remain. The Bank of England will watch whether services inflation and pay growth continue to ease. Monetary policymakers are trying to balance the risk of persistent inflation against the danger that restrictive borrowing costs hold back investment and employment.

A fragile improvement

The July result is encouraging after June’s contraction, but one month does not establish a durable trend. Some activity may have been linked to temporary consumer boosts, and confidence can change quickly if energy prices or geopolitical risks worsen. The survey’s most important message is therefore qualified. UK services regained momentum, orders improved and cost pressures softened. But the sector has not yet reached a point where stronger activity is producing broad-based hiring. The recovery remains real enough to measure and fragile enough to reverse.