Activity in the UK’s service sector returned to growth last month amid improving customer confidence and reduced tariff concerns, figures show.
However, firms also reported a slowdown in price inflation for the month despite recent cost increases, such as higher wage bills.
The S&P Global UK services PMI survey scored 50.9 in May, rising from the 27-month low of 49.0 reported in April.
Any reading above 50 means the sector is growing, while a score below means it is contracting.
The new figure was stronger than the 50.2 reading predicted by a consensus of economists.
Tim Moore, economics director at S&P Global Market Intelligence, said: “The service sector regained its poise in May as receding concerns about US tariffs, recovering global financial markets and greater confidence among clients all helped to support output growth.
“Although only marginal, the upturn in service sector activity was stronger than first estimated in May.
“Output growth expectations for the year ahead also rebounded after April’s tariff-related slump.”
It comes after the US and UK governments agreed an arrangement which will reduce previously-expected tariffs on a raft of goods being imported to America.
In May, the US said UK aluminium and steel imports are set to be tariff-free once a trade deal between the nations in ratified, while a set number of car imports will also face lower rates.
The report also showed optimism among businesses rose to its highest level since October 2024, reflecting improving hopes about domestic trade.
Nevertheless, service companies also highlighted that elevated business uncertainty and pressure on budgets linked to higher labour costs “continued to dampen demand”.
Companies in the sector reported total new work decreased for the fourth time in the past five months despite export sales broadly stabilising.
Meanwhile, the overall rate of inflation in the sector eased slightly but was still close to levels not seen since the summer of 2023, with firms linking this to increases in the national minimum wage and national insurance contributions.
However, inflation on prices charged to customers dropped to a seven-month low due to increased competition.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “UK growth has passed the worst as President Trump walking back his more ruinous tariffs cuts the panic that took hold in April.
“Take out the overly large response of business sentiment to uncertainty, as well as smoothing through volatility, and services business sentiment has been steady since October at a level consistent with only slightly below potential GDP growth.
“We estimate that the average PMI in April and May points to a much stronger final estimate of 0.5% quarter-to-quarter GDP growth once we control for uncertainty.”
