UK services lift August growth while job cuts hit a 23‑month streak

UK economy showed a modest uptick in August, with the private sector expanding at its fastest rate in four months, according to a provisional purchasing managers’ index (PMI) released by S&P Global. Despite the upbeat reading, the labour market continued to shed jobs for the 23rd month in a row, the longest losing streak recorded since the survey began in 1996.

What the numbers say

The overall PMI for the private sector rose to 52.5, just above the 50 threshold that separates growth from contraction. Growth in the services sector helped push the index higher than in July, while the manufacturing component slipped slightly, falling from 51.9 to 51.5.

Why the labour market matters

Job cuts have now stretched over 23 consecutive months, and the unemployment rate has risen from 4.4 % to 4.9 % since Labour took power in mid‑2024. The party’s first budget introduced higher minimum wages and increased national insurance contributions for employers, adding to cost pressures for small firms.

"The expansion is being helped by sunny weather and tech investment, though as expected we have seen some softening of growth in the manufacturing sector as precautionary stock building cools," said Chris Williamson, chief business economist at S&P Global.

Williamson added that the Middle East conflict and domestic policy uncertainty continue to weigh on businesses, while energy prices and staffing costs keep cost pressures high. A cost calculator from the British Chambers of Commerce estimates that a typical small firm’s cost stack has risen about 70 % since 2016, with a quarter of that increase occurring after the 2024 budget.

What comes next

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the improved sentiment could see GDP growth of around 0.2 % in the third quarter, still above the Bank of England’s forecast of 0.1 %. However, he warned that uncertainty around the upcoming Autumn budget and higher energy prices could erode the modest gains.

Analysts are watching fiscal developments closely. Recent data on UK borrowing suggest the new chancellor may face pressure to balance support for growth with rising debt levels. Meanwhile, a City economist argues that keeping taxes steady could help stabilise business costs and slow the job‑loss streak.

For now, the economy’s mixed signals mean investors and policymakers will need to balance optimism about services‑led growth with the reality of a labour market that has yet to turn the corner.