UK private sector activity grew at a faster-than-expected pace in August, marking the strongest expansion in four months. This surge propelled the pound to a 13-month high against the dollar, signaling robust economic growth over the summer.
The S&P Global Flash UK PMI composite output index, which measures the health of the manufacturing and services sectors, rose to 53.4 in August from 52.8 in July, driven by easing price pressures. This was the highest reading since April and exceeded the 52.9 forecast by economists in a Reuters poll, boosting sterling by 0.2 percent against the dollar to its highest level since July 2023.
However, the pound later retreated, trading flat at $1.3095 as the dollar strengthened. Sterling also gained 0.4 percent against the euro, reaching £0.8484.
A reading above 50 in the S&P index indicates that a majority of businesses reported expansion compared to the previous month.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that August saw a “welcome combination of stronger economic growth, improved job creation, and lower inflation.”
The data pointed to easing inflationary pressures across the private sector, suggesting that the UK economy is likely to grow at a “reasonably solid” rate of about 0.3 percent in the third quarter, Williamson added.
Official data also showed that GDP growth has rebounded strongly from last year’s recession, with the economy expanding by 0.7 percent in the first quarter and 0.6 percent in the second.
The survey revealed that input costs in August rose at their slowest pace since January 2021. Inflationary pressures eased significantly in the services sector—a key area of focus for the Bank of England.
Recent official inflation data showed that services price growth fell sharply from 5.7 percent in June to 5.2 percent in July, with headline inflation at 2.2 percent, remaining close to the central bank’s 2 percent target.
Ashley Webb, an economist at Capital Economics, said that while the S&P data “probably won’t be enough to trigger a back-to-back interest rate cut in September,” it suggests that “services inflation will continue to fade, and rates may be cut from 5 percent now to 4.5 percent by the end of the year.”
The Bank of England reduced its benchmark rate by 0.25 percentage points in August, marking the first cut in over four years. Financial markets currently see a 70 percent chance that the central bank will maintain rates at its next meeting in September.
Both the manufacturing and services sectors showed solid growth, with the PMI index for services climbing to a four-month high of 53.3 in August from 52.5 in July. The manufacturing index also reached a 26-month high, rising to 52.5 this month from 52.1 in July.
Businesses reported improving sales, particularly in the UK market, attributed to softer price pressures and lower borrowing costs, as well as optimism for a sustained recovery in UK economic conditions.
Job creation reached its fastest pace in 14 months, with increased staffing levels in both sectors. The rise in employment was supported by a more optimistic outlook for the near-term business environment.
The UK composite reading of 53.4 in August outpaced the eurozone’s 51.2, which itself marked a three-month high. The UK economy outperformed the eurozone in the first half of 2024, with growth of 0.3 percent in both the first and second quarters.
“The UK remains a bright spot in Europe this year,” said Salomon Fiedler, economist at Berenberg Bank.
