Solid services sector ‘bodes well’ for UK economy despite stubborn price pressures
Business activity in the services sector picked up in July, according to a closely watched business survey, suggesting that the economy will continue to grow in the months ahead.
S&P’s purchasing managers’ index (PMI) for the services sector picked up to 52.5 last month, rising from 52.1 in June and marginally ahead of the 52.4 recorded in the ‘flash’ estimate.
PMIs measure business activity in the private sector and are closely watched for indications about how the economy is performing. Anything above 50 indicates growth.
This is the first time since April that there has been an acceleration in growth across the services sector.
The survey reported strong increases in demand in the services sector, rising levels of employment and rebounding business confidence in the wake of the general election campaign.
“With the general election period coming to an end at the start of July, survey data for last month showed the UK service sector enjoyed a modest rebound after a fairly subdued end to Q2,” Joe Hayes, principal economist at S&P Global Market Intelligence said.
“July’s accelerated expansion in sales activity crucially suggests business and consumer confidence has improved, and albeit only one month into the second half of 2024, the latest survey results bode well for a reasonable GDP growth print in Q3,” he added.
Firms benefited from an improving picture on the demand side, with sales improving at their strongest pace since last May. Exports were also a major growth area, with demand rising in Europe, North America and Asia.
With demand rising, companies in the services sector took on more workers. Workforce growth quickened to its strongest pace since last June, the survey showed.
There was mixed news on the inflation front, with rates of both input and output inflation among the softest seen in around three-and-a-half years.
However, looking over a longer time frame, price pressures were still “well above” the pre-pandemic average. Transportation costs, wages and IT all pushed up on expenses.