May's services PMI slid to 42.9, the lowest in 66 months, signaling ongoing contraction as readings below 50 indicate shrinking activity. Economists warn the euro zone, led by France, faces deeper downturn risks with a sharp drop in new orders and rising inflationary pressures from oil-price shocks.

S&P Global notes the eurozone economy contracted for a second straight month, marking the deepest slide in over two-and-a-half years and flagging a likely 0.2% quarterly dip in Q2, with rising job loss and fading business confidence.

S&P Global calls the UK economy in a “perfect storm” of political uncertainty and Middle East war driving output declines, inflation, and potential supply shortages, undermining confidence and spending.

The Bank of England faces a dilemma as weak activity clashes with persistent inflation, with analysts split on whether to raise rates later in 2026 or hold after a likely June decision.

Across measures, demand is deteriorating, input costs are higher, and supply-chain disruptions are pressuring margins and sustaining inflation.

Analysts project mixed growth: a small Q2 GDP contraction and slower activity, with France and broader euro-area seeing softer momentum amid mixed signals.

Manufacturers report orders rising mainly due to clients pre-empting price hikes and supply disruptions tied to the Iran war, while overall inflation remains elevated amid energy costs and shipping delays.

War-related supply delays and longer supplier delivery times are amplifying operational and inflation pressures across sectors.

Economists foresee a policy quandary: curb inflation without pushing the economy into a deeper recession, given geopolitical headwinds and domestic political instability.

Analysts describe the broader European and UK outlook as a blend of political uncertainty, inflation and external tensions depressing output, confidence and investment.

The flash PMI signals a challenging near term for Europe, with inflationary pressures and war-related shocks shaping policy considerations.

Most economists expect the Bank of England to hold rates at 3.75% in June, arguing weaker activity may help restrain inflation without an immediate hike.