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Britain’s private sector activity grew more than expected in August, expanding at its fastest pace in four months, propelling the pound to a 13-month high against the dollar and stoking expectations of robust economic growth in the summer.
The S&P Global Flash UK PMI composite production index, a gauge of the health of the manufacturing and services sectors, rose to 53.4 in August from 52.8 in July, supported by easing price pressures.
The reading was the highest since April and beat the 52.9 forecast by economists in a Reuters poll, and sent sterling up 0.2 percent to $1.3122, its highest since July 2023.
A reading above 50 indicates most companies are reporting an increase in business from the previous month, and the rise in the pound has led to an overall increase of 2% against the dollar this month.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said August “showed a welcome combination of faster economic growth, improving job creation and lower inflation.”
He added that the figures indicate that inflationary pressures across the private sector are easing and suggest that the UK economy will expand at a “fairly robust” rate of around 0.3% in the third quarter.
Separate official data showed GDP growth rebounded strongly from last year’s recession, growing 0.7 percent in the first quarter of this year and 0.6 percent in the second.
The survey showed that input costs rose at the slowest rate in August since January 2021, and that inflationary pressures in the services sector, a concern for the Bank of England, eased sharply.
Official inflation data released last week showed that services price growth slowed sharply to 5.2% in July from 5.7% in June, while headline inflation remained close to the central bank’s 2% target at 2.2%.
Ashley Webb, an economist at research firm Capital Economics, said S&P’s announcement “probably will not be enough to trigger a series of rate cuts in September,” but suggested “services inflation will continue to slow and interest rates will be cut from the current 5% to 4.5% by the end of the year.”
The Bank of England cut interest rates by 25 basis points in August, the first cut in more than four years, and financial markets are priced in a 70 percent chance that the bank will keep rates steady when it next meets in September.
Recommendation
Both the manufacturing and services sectors showed solid growth, with the services sector PMI index rising to a four-month high of 53.3 in August from 52.5 in July, while the manufacturing PMI rose to a 26-month high of 52.5 this month from 52.1 in July.
Companies reported improving sales, particularly in the UK market, due to easing pricing pressures and lower borrowing costs, as well as expectations of a sustained improvement in economic conditions in the UK.
Job creation hit a 14-month high with payrolls added in both sectors. The acceleration in job growth was fueled by rising optimism about the near-term business outlook.
The UK’s composite index was 53.4 in August, well above the euro zone’s 51.2, which was its highest level in three months. The UK economy is expected to outperform the euro zone’s in the first half of 2024, growing 0.3% in both the first and second quarters.
“The UK has been another bright spot in Europe this year,” said Salomon Fiedler, an economist at Berenberg Bank.
