UK services PMI strongly rebounds in August, stays higher than market consensus

The United Kingdom’s services Purchasing Managers’ Index (PMI)strongly rebounded during the month of August, staying higher than what markets had initially anticipated.

According to the UK Markit PMI reading for August, the UK services sector returned to growth with a reading of 52.9 from the 89-month low of 47.4 the previous month. The reading was also significantly higher than the consensus forecast of around 49.5, although still below the long-term average.

Following the drop of 4.9 points for July, the August gain of 5.5 points was the strongest in the survey’s 20-year history and there will be a further boost to the near-term economic outlook.

The renewed expansion of total activity was supported by resumption in growth of new business in August. New work rose at the fastest pace in four months, having previously fallen at the strongest rate since March 2009 in July. Companies linked greater demand to new clients, higher export business linked to the weak pound, higher domestic tourism and returning confidence following initial disruption related to the Brexit vote, Markit reported.

Service sector confidence returned to its pre-referendum level in August, having spiked lower in July due to uncertainty generated by the Brexit vote. Input price inflation accelerated to a 33-month record in August, linked to the weak pound and rising fuel and labour costs. Subsequently, service providers raised their own prices at the sharpest rate since January 2014.

"Uncertainty has certainly eased considerably, helped by the swift settling-in of a new government and central bank stimulus," said Chris Williamson, Chief Business Economist, HIS Markit.