UK service sector perks up in August, adding to resilience signs

Britain's service industry strengthened unexpectedly in August, according to a survey released on Friday, adding to signs of resilience despite regional tensions. The S&P Global Flash UK Services Purchasing Managers' Index surged to a six-month peak of 52.8 in August, up from 52.1 in July, surpassing expectations of a decline to 51.8 in a Reuters poll.

Companies cited improving domestic conditions, supported by a recent rise in consumer confidence to its highest level since August 2024 following the Labour government's election under Prime Minister Keir Starmer.

The positive indicators bolster expectations for the economy, a boon for Starmer's successor Andy Burnham and finance minister John Healey, who anticipate defying predictions of a slowdown after robust growth in the first half of the year. S&P Global's data align with an estimated 0.3% growth in the third quarter, mirroring the second quarter's output.

The economic upturn is attributed to favorable weather and technology investments, although a slight slowdown in the manufacturing sector, driven by precautionary stock reductions, is expected, noted Chris Williamson, chief business economist at S&P Global. Official data last week also highlighted strong tech investment, reflecting the growing impact of the AI boom on Britain's economic landscape.

Despite some rebound in input and output prices, the flash PMI's measures partially recovered this month after falling in July. However, the effects of the ongoing Iran war remain uncertain. Services sector employment declined, but at the slowest rate since October. The optimism among services companies reached a seven-month high this month.

While the manufacturing sector's PMI dipped to a five-month low of 51.5 in August, from 51.9 in July, the composite PMI, combining both industries, rose to a four-month high of 52.5, contrasting forecasts for a drop to 51.6.