Britain’s services industry suffered its biggest slump in three and a half years last month as the Iran war drove up costs and political uncertainty hit confidence, figures showed yesterday.

The closely-watched purchasing managers’ index (PMI) survey for the sector gave a reading of 48.8 in June – on a scale where the 50-mark separates growth from contraction.

It was the lowest reading since January 2023 and the second month in a row below 50.

The decline comes at a time when, despite a ceasefire in the Middle East, the impact of the conflict continues to reverberate even though the initial oil price shock that it caused has abated.

Tim Moore, economics director at S&P Global Market Intelligence, which compiled the survey, said: ‘June data confirmed a clear loss of momentum for the UK economy during the second quarter of 2026, following a positive start to the year.

‘Strong cost pressures, lacklustre demand and business uncertainties arising from the Middle East conflict were the most prominent themes.

‘This led to fragile investment sentiment, elevated risk aversion among clients and squeezed consumer budgets.’

The report said that business confidence ‘remained much less upbeat’ than normal as ‘squeezed consumer budgets and domestic political uncertainty’ took their toll.

However, Martin Beck, chief economist at WPI Strategy, said: ‘With geopolitical tensions easing and oil prices falling sharply, June may well prove to be the low point. The result is that the next prime minister may find themselves catching a lucky break.’