UK services economy rebounds in August
The UK service sector returned to growth in August, according to latest survey data from IHS Markit and CIPS. This follows abrupt contractions in output and new business in July linked to disruption related to the outcome of the EU referendum. (Source IHS Markit and CIPS)
Return to Growth: The latest data signalled a return to growth as companies reported that uncertainty had abated somewhat. Moreover, the forward-looking business expectations index recovered most of the ground lost in July when confidence took a knock from the Brexit vote amid political and economic uncertainty, albeit remaining weak by historical standards.
The Business Activity Index rebounded to 52.9 in August, from 47.4 in July, signalling a rise in UK services output. (The survey’s headline figure is the seasonally adjusted Markit/CIPS UK Services Business Activity Index, a single-figure measure designed to track changes in total UK services activity compared with one month previously. Readings above 50.0 signal growth of activity compared with the previous month, and below 50.0 contraction)
The month-on-month gain in the index, at 5.5 points, was the largest observed over the 20-year survey history, following a record drop of 4.9 points in July. The rate of expansion in the latest period was the fastest since May, but weaker than the long-run survey average.
Latest data indicated rising inflationary pressure linked to the weak pound. 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.
Job creation in the service sector resumed in August following a pause in July. The survey suggests however that the rate of workforce growth was weak.
Service sector confidence returned to its pre-referendum level in August, having spiked lower in July due to uncertainty generated by the Brexit vote. Firms linked positive output expectations over the next 12 months to export opportunities, reduced uncertainty, stable markets, product launches, expansion plans and a recovery in the energy sector. The overall strength of sentiment nevertheless remained relatively subdued amid reports of ongoing uncertainty related to Brexit. See the Markit/CIPS Survey See this on Supply Management