Services firms benefit from post-election stability and rosy economic outlook
The UK’s services sector post-election bounce continued in August, a closely watched business survey suggests, while inflationary pressures continued to ease.
S&P’s final purchasing managers’ index (PMI) for the services sector came in at 53.7, accelerating on last month’s 52.5 and ahead of the earlier ‘flash’ estimate of 53.3.
The survey put activity in the services sector at its fastest pace since April, extending the current period of growth to ten months.
One of the major factors noted by firms was reduced political uncertainty in the wake of the summer election. Previous surveys revealed businesses had delayed investment decisions during the campaign.
The survey showed new business growth was only slightly lower than July’s 14-month high, signalling a strong recovery from the “soft patch” in the run-up to the election.
An improving economic backdrop also helped to lift activity. The survey noted that customers were increasingly willing to spend as inflation has receded and confidence has built. The prospect of interest rate cuts in the near future should also help to sustain momentum.
“It seems that political stability, stronger growth and lower interest rates are all combining to improve the outlook for businesses,” Thomas Pugh, an economist at RSM UK said.
The survey showed that employment numbers increased for the eighth consecutive month, despite strong wage pressures and “a lack of suitable candidates” to fill certain vacancies.
And while wage pressures remained relatively high, this did not prevent the overall rate of input cost inflation easing to its slowest since January 2021. Prices charged inflation, meanwhile, dropped to a three-and-half year low.
Tim Moore, economics director at S&P Global Market Intelligence, said the survey showed “meaningful signs” of softer inflationary pressures. However Pugh said rate-setters will still be “wary” of the pick-up in demand for labour.
The persistence of price pressures in the labour-intensive services sector has been a major concern for policymakers at the Bank of England and will impact how fast interest rates will fall.
The latest figures showed services inflation falling to 5.2 per cent alongside a surprise decrease in unemployment.