Britain’s dominant services sector expanded faster than expected in August, offering fresh evidence that the economy is holding up despite uncertainty caused by the conflict in the Middle East.
The S&P Global Flash UK Services Purchasing Managers’ Index rose to 52.8 from 52.1 in July, reaching its highest level in six months and exceeding economists’ forecast of 51.8. A reading above 50 indicates growth.
Businesses reported stronger domestic demand and improving client confidence, while consumer sentiment also reached its highest level since August 2024. The brighter mood provides welcome news for Prime Minister Andy Burnham and Finance Minister John Healey as they prepare for a period in which many economists expect growth to slow.
S&P Global said the survey was consistent with economic expansion of roughly 0.3% in the third quarter, close to the pace recorded in the previous quarter. Sunny weather and continued investment in technology helped support activity, although manufacturing growth lost momentum.
The manufacturing PMI fell to 51.5 from 51.9, marking a five-month low as companies reduced the stockpiling that had previously supported factory output. Even so, the composite PMI, which combines services and manufacturing, climbed to 52.5 from 52.2, its strongest reading in four months.
Inflationary pressures showed signs of returning, with measures of input and output prices rising after weakening in July. Businesses pointed to higher global energy costs, which have increased as the Iran conflict continues to disrupt regional oil supplies.
Employment in the services sector continued to decline, although the rate of job losses eased to its slowest pace since October. Meanwhile, business optimism rose to a seven-month high, suggesting that companies remain cautiously confident about the months ahead.
The figures may reinforce the Bank of England’s preference for a cautious approach to interest rates. Policymakers are likely to weigh the economy’s resilience against renewed price pressures before deciding whether further rate changes are necessary.
