Wednesday 05 September 2018 10:05 am

Brexit takes a toll on UK business confidence, despite services sector uplift

The UK services sector experienced stronger rises in business activity and incoming new work in August, but faced falling business optimism due to uncertainty about the UK's political future.

The IHS Markit purchasing managers' index (PMI) for the services sector reached 54.3 in August, up from 53.5 in July and at its second-highest level since February. This latest reading was slightly above the average seen over the period.

Though improving business conditions helped to turnaround employment growth in the sector to its fastest for six months, respondents to the survey told IHS Markit that they had struggled to fill new roles with suitably-skilled candidates.

This has led to constrained business expansion plans, as well as higher salary payouts.

As such, business confidence for the year ahead dropped down to its lowest since March, attributed largely to political uncertainty and the impact of Brexit on business operations.

However coming off the back of disappointing PMI reports for the construction and manufacturing sectors, IHS Markit's chief business economist Chris Williamson described the faster services growth as "much needed welcome news".

"The survey data indicate that the economy is on course to expand by 0.4% in the third quarter, a relatively robust and resilient rate of expansion that will no doubt draw some sighs of relief at the Bank of England after the rate hike earlier in the month," he added.

However "given the increasingly unbalanced nature of growth and the darkening business mood, risks to the immediate outlook seem tilted to the downside."