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UK private sector activity has grown more than expected in August and at the fastest pace in four months, sending the pound to a 13-month high against the dollar and pointing to solid economic growth in the summer.
The S&P Global Flash UK PMI composite output index, a measure of the health of the manufacturing and services sectors, rose to 53.4 in August from 52.8 in July, helped by easing price pressures.
The reading was the highest since April and above the 52.9 forecast by economists in a Reuters poll, prompting sterling to rise 0.2 per cent to $1.3122, its highest point since July 2023.
A reading above 50 indicates a majority of businesses reporting an expansion from the previous month, and sterling’s increase brought total gains against the dollar this month to 2 per cent.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said August was “witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation”.
The figures pointed to easing inflationary pressures across the private sector and suggested the UK economy would expand at a “reasonably solid” rate of about 0.3 per cent in the third quarter, he added.
GDP growth has rebounded strongly from last year’s recession, according to separate official data, coming in at 0.7 per cent in the first quarter of this year and 0.6 per cent in the second.
As well as reporting that input costs rose at the slowest pace since January 2021 in August, the survey showed inflationary pressures moderated sharply in the services sector — an area of concern for the Bank of England.
Official inflation data last week showed services price growth eased sharply from 5.7 per cent in June to 5.2 per cent in July, with headline inflation at 2.2 per cent staying close to the central bank’s 2 per cent target.
Ashley Webb, economist at research company Capital Economics, said the S&P release “probably won’t be enough to trigger a back-to-back interest rate cut in September” but suggested “services inflation will continue to fade and rates will be cut from 5 per cent now to 4.5 per cent by the end of this year”.
The BoE cut its benchmark rate by 0.25 percentage points in August, the first reduction in more than four years. Financial markets are pricing in a 70 per cent probability that the central bank will hold rates at its next meeting in September.
Both the manufacturing and services sectors posted solid growth, with the PMI index for services rising to a 4-month high of 53.3 in August from 52.5 in July. The same index for manufacturing rose to a 26-month high of 52.5 this month from 52.1 in July.
Businesses reported improving sales, particularly in the UK market, linked to softer price pressures and lower borrowing costs, alongside hopes of a sustained revival in UK economic conditions.
Job creation hit its fastest level for 14 months, with higher staffing in both sectors. The pick-up in employment growth was boosted by more optimistic sentiment about the near-term business outlook.
The UK composite reading of 53.4 in August was well above that of the eurozone’s 51.2, although that marked a three-month high. Britain’s economy outperformed the Eurozone in the first half of 2024, with growth of 0.3 per cent in both the first and second quarters.
“The UK remains a bright spot in Europe this year,” said Salomon Fiedler, economist at Berenberg bank.