UK economy on ‘much stronger footing’ as growth hopes rise
The UK economy is expected to accelerate as leading survey data for August showed the services sector on a “much stronger footing”, according to researchers.
Chancellor Rachel Reeves has pledged to put “working people” at the heart of plans for the Autumn Budget, which has been announced for 26 November.
Businesses will be hoping expected tax rises do not thwart growth and investment as S&P Global’s latest purchasing managers’ index (PMI) suggested new orders in the services sector grew at its steepest pace on a month-to-month basis in four-and-a-half years.
Researchers said August’s composite PMI reading was 53.5, which is above the 50-figure mark for neutrality and represented a 16-month high.
An upturn in the services sector, which posted a score of 54.2, buoyed activity in the UK economy after the manufacturing PMI slipped in results published on Monday.
For comparison, the composite reading for July was 51.5.
Higher growth in new work was driven by rising sales across the UK and overseas, with firms saying they found more clients in the EU and the US.
Business confidence also hit a 10-month high, suggesting firms were looking past damaging employment tax rises made at last year’s Budget.
Tim Moore, economics director at S&P Global Market Intelligence, said: “August data highlights a welcome acceleration of output growth and a swift rebound in order books after July’s dip, leaving the UK service economy on a much stronger footing as the end of summer comes into view.”
“Improved sales pipelines, lower borrowing costs and receding fears about US tariffs all helped to boost business optimism.”
UK economy could be weaker than PMI shows
There were concerning aspects to the latest PMI readings, which are widely used by economists, policymakers and industry groups to track growth in the UK economy.
S&P Global said hiring remained “subdued”, with the current 11-month period of falling employment being the longest streak since the aftermath of the 2008 financial crash.
Respondents to the survey said they were focusing more on automation and investing in improving productivity to “help offset rising wage bills”.
Matt Swannell, chief economic adviser to the EY ITEM Club, said poorer performances across retail and health meant actual UK growth will be “softer” than shown in the PMIs given survey results did not cover those sectors.
Swannell also pointed to the worrying trend in inflation as firms said that costs picked up in August.
“The Monetary Policy Committee’s September meeting has always looked likely to see rates held, but the committee’s hawkish pivot in August means that it’s a close call as to whether Bank Rate is cut or held in November.”