Britain’s dominant services sector returned to growth in July, offering a fresh sign that the economy may be stabilising after months of stop-start momentum. The latest S&P Global survey also showed business optimism rising to its strongest level since before the Iran war began in February, a shift that could ease fears over the near-term outlook for growth and hiring.

Services recovery lifts hopes for the wider economy

The services PMI moved back into expansionary territory as new orders improved, Reuters reported, with the survey pointing to a better mood among firms about activity over the next 12 months. Because services account for the bulk of UK output, the reading is widely watched as one of the clearest monthly indicators of the country’s economic health.

The improvement comes after a period of uncertainty for businesses facing weak demand, geopolitical shocks and persistent cost pressure. Reuters said expectations for activity in the coming year were the highest since before the Iran war started in February, a notable turnaround in sentiment even as companies remain cautious about broader risks.

What the data suggests

The PMI reading is important because it captures both current activity and forward-looking sentiment, making it a timely gauge of whether firms are seeing a sustained recovery or merely a short-lived rebound. A return to growth in services can also support employment, investment and consumer-facing spending if the trend continues into the autumn.

• New orders picked up, helping pull the services sector back into growth.
• Business optimism rose to its highest level since before February’s Iran war shock.
• The services sector matters disproportionately because it dominates UK economic activity.

While the survey points to improving conditions, it does not erase the wider fragilities facing the UK economy. Reuters’ separate reporting this week has also highlighted a mixed picture across business sectors, with construction still weak and parts of the housing market flat, underscoring how uneven the recovery remains.

For policymakers and investors, the key question is whether July’s rebound marks the beginning of a more durable upswing or simply a pause in a volatile year for business conditions. For now, the strongest signal from the data is that Britain’s service firms are starting to look more confident about the months ahead.