UK business activity hits four-month high as cost pressure eases
Activity across the UK private sector hit a four-month high in August, supported by a “robust rebound” in new orders, key data shows.
The UK composite purchasing managers’ index (PMI) from S&P Global Flash recorded a reading of 53.4 in August, up from 52.8 in July.
It exceeded economists’ expectations, which had forecast a reading of 52.9 for the latest survey.
The provisional figures are based on preliminary data. A value below 50 means that activity is declining, while a value above it means it is increasing.
Chris Williamson, chief economist at S&P Global Market Intelligence, said: “Preliminary PMI survey data show that August saw a welcome combination of stronger economic growth, improved job creation and lower inflation.”
Inflationary pressures eased across the private sector and input costs rose at the slowest pace since January 2021, mainly due to easing cost pressures in the services sector.
Survey respondents said more optimistic assessments of the recent domestic economic outlook had spurred efforts to increase business capacity.
Job growth was the highest since June 2023 as “stable demand conditions” contributed to an increase in hiring.
Mr Williamson continued: “Both the manufacturing and services sectors are reporting solid output growth and increasing employment gains as business confidence remains high by historical standards.
“Although GDP growth is expected to moderate in the third quarter compared to the impressive gains in the first half of the year, the PMI suggests that the economy is expanding at a fairly solid quarterly rate of around 0.3%.
“Inflationary pressures, meanwhile, continued to ease in August, particularly in the services sector, which is a key problem area for the Bank of England.
“The latest survey data therefore help lower the hurdle for further rate cuts, although still high inflation in the services sector suggests that policymakers will proceed cautiously.”
Last month, the bank cut its benchmark interest rate by a quarter of a percentage point to 5%, prompting economists to speculate whether there will be another rate cut at the next Monetary Policy Committee (MPC) meeting in September or later in the year.
Although cost pressures on input factors are easing, a strong increase in production in the services sector could prevent politicians from cutting interest rates too quickly, economists say.
Thomas Pugh, economist at RSM UK, said the increase, coupled with further signs that hiring is picking up again, meant the MPC “will be in no rush to cut rates again next month”.
However, he said the survey pointed to “an economy that continues to recover from last year’s recession.”
“There is no evidence in the data that would prompt the MPC to bring forward its next rate cut to next month, but underlying trends suggest that both the economy and price pressures are moving in the right direction.
“This will open the door for one or possibly two rate cuts towards the end of the year.”
