The UK service sector registered its fastest pace of growth in 10 months this June, buoyed by a modest rebound in domestic demand and easing cost inflation, according to the latest S&P Global PMI data. Yet a continued slide in employment and subdued export activity suggests that optimism must still be tempered, particularly for the insurance and broader financial services industries.
The headline UK Services PMI business activity index rose to 52.8 in June, up from 50.9 in May, marking the strongest monthly expansion since August 2024. It was also well above the earlier flash estimate of 51.3. However, the figure remains below the long-run average of 54.3, pointing to growth that is encouraging but hardly robust.
For insurers, the data present a mixed picture. While the broader financials category ranked second among 21 global sectors for output growth, the insurance subsector sat in the middle of the performance table, behind banks and other financials. Notably, the insurance industry experienced a slower rate of input cost inflation than most other service sectors, suggesting some relief from margin pressures.
However, job trends remain concerning. Employment in the UK services economy fell for the ninth consecutive month, with the pace of decline quickening in June. The PMI survey attributes this to elevated payroll costs and the widespread non-replacement of voluntary leavers. Insurance firms - many of which are in the midst of strategic workforce reshaping - are unlikely to buck this trend in the near term.
New business volumes rose in June for only the second time this year, driven largely by domestic demand. Export sales, by contrast, continued to contract for the third month running. Respondents cited US tariffs and geopolitical instability as persistent headwinds affecting international clients.
“June data highlighted a modest rebound in UK service sector growth, fuelled by a turnaround in domestic business and consumer spending,” said Tim Moore, economics director at S&P Global Market Intelligence. “Shrinking export sales were a constraint on service sector growth,” he added, noting lingering concerns about global demand conditions.
A key positive for the sector was the continued easing of input cost inflation. Only 29% of surveyed firms reported rising cost burdens - down from previous months - while just 1% noted a decline. This moderation in cost pressure has fed through to output prices, which rose at their slowest pace since February 2021. Among all sectors globally, insurance posted one of the more modest increases in both input costs and prices charged.
Softer inflation readings will be welcomed by the Bank of England, which is under growing pressure to continue its rate-cutting cycle. Many in the insurance sector will also welcome the policy relief, given its potential to revive muted investment activity and boost client solvency positions.
Business confidence remains net positive, with 44% of UK services firms anticipating growth over the next 12 months. But sentiment dipped slightly from May, with many respondents voicing concerns over domestic economic prospects, lingering trade friction, and geopolitical uncertainty.
The sector data, when taken in context, suggests a slow but stabilising environment for UK insurers. Easing inflation and a tentative return to growth offer some breathing room. Yet continued weakness in employment, export demand, and healthcare services (which posted the sharpest activity decline in over a year globally) serve as a cautionary counterbalance.
For insurance leaders planning for the rest of 2025, the message is clear: cost control remains paramount, but a sharp eye on hiring trends and international exposure will be critical in navigating the uneven road ahead.
