UK Service Sector Logs Stronger Upturn In August

UK services sector expanded at a faster pace in August, largely driven by stronger new orders, despite the Brexit uncertainty, survey data from IHS Markit showed Wednesday.

The IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose more-than-expected to 54.3 from 53.5 in July, reaching its second-highest level since February.

The expected score was 53.9. The index has remained above the neutral 50.0 no-change mark in each month since August 2016.

Ruth Gregory, an economist at Capital Economics, said the survey provides reassurance that the rebound in GDP growth in the second quarter has been sustained in the third quarter so far. Despite this, the chances of an interest rate hike at next week's Bank of England meeting are extremely slim.

"Given our assumption that a Brexit deal will only be secured at the eleventh hour, we don't expect the MPC to raise rates again until May 2019, after the UK has left the EU," the economist added.

"In summary, though the sector remained in positive territory, the dark clouds of political indecision are still having an effect and preventing more business activity," Duncan Brock, group director at the CIPS, said.

"Service providers are likely to continue along this vein for the rest of the year until those clouds have cleared," Brock added.

New work growth picked up slightly since July, but was still softer than the trend since the current phase of expansion started in August 2016.

The rate of job creation was the fastest since February, reflecting efforts to boost business capacity and meet increased workloads. Difficulties recruiting suitable skilled staff contributed to higher salary payments.

Despite a sharp and accelerated rise in average cost burdens, intense competitive pressures meant that prices charged inflation was only moderate and remained well below the peak seen in November 2017.

However, optimism towards the year-ahead business outlook hit five-month low in August. Brexit uncertainty had a near-term impact on clients' business investment plans.