UK August Services PMI rises to four-month high, driving continued economic expansion

According to the latest report from Intelligent Financial News, a survey shows that the UK's service sector activity grew at the fastest pace since April last month, with some easing of price pressures. The survey indicates a more moderate inflation outlook, with the UK economy stabilizing after the July general election. The final value of the UK's August SPGI Services PMI rose from 52.5 in July to 53.7, higher than the expected 53.3.

The survey further reveals that there has been an improvement in business and inflation conditions in the UK since the election on July 4th. Cost pressures for service companies and their selling prices have grown at the slowest pace since early 2021, which could be good news for the Bank of England, which is set to announce its interest rate decision on September 19th. Last month, the Bank of England cut borrowing costs for the first time since March 2020, reducing rates from a 16-year high of 5.25% to 5.0%. Investors expect another rate cut before the end of the year.

Tim Moore, Director of Global Economics at S&P, stated: "The data for August highlights a recovery in the performance of the UK service sector, with improved economic conditions and domestic political stability helping to boost customer demand."

However, the survey shows a slight cooling of optimism for the coming year, with slower job growth. Moore said: "Hopes for rate cuts and steadily improving economic conditions help support confidence, but some businesses have expressed concerns about policy uncertainty ahead of the autumn budget announcement."

UK Chancellor Rachel Reeves warned that tax increases will have to be implemented in the October 30th budget to help alleviate public finance pressures.

Thanks to strong growth in the service sector, the UK's August SPGI Composite PMI rose from 53.4 in July to 53.8 in August, higher than the expected 53.4. Meanwhile, the previously released Manufacturing PMI showed that in August, UK factory output expanded at a faster pace than in any other developed market surveyed by Standard & Poor's.

With domestic demand offsetting the decline in exports, UK factories experienced their strongest month in over two years, showing signs of economic growth momentum. This provides a favorable backdrop for the new government led by Prime Minister Keir Starmer, who is seeking to accelerate economic growth.

Data shows that the UK's August SPGI Manufacturing Purchasing Managers' Index (PMI) rose from 52.1 in July to 52.5, the highest level since June 2022, matching the preliminary figure for August. UK manufacturing in August recorded its strongest monthly performance in over two years.

Rob Dobson, Director of Global Market Intelligence at Standard & Poor's, stated: "Manufacturing is generally improving, with the investment goods sector performing particularly well."

Demand for investment goods is often seen as an indicator of business confidence in economic prospects. Employment continues to grow alongside output and new orders. The UK economy is performing stronger this year than forecasted by institutions including the Bank of England.

However, analysts at a US bank previously stated in a report that they expect the Bank of England to remain cautious in rate cuts, with only one more cut expected in November this year, followed by four cuts in 2025, and then another cut in 2026. They said: "Strong growth above trend and persistent inflation risks suggest that the easing cycle will proceed slowly Bank of America expects the UK economy to grow by 1.1% in 2024, higher than the previous forecast of 0.8% growth. The growth may be supported by the rebound in real income and the weakening impact of interest rate hikes