Growth rise in UK services biggest in 20 years

Will Green is news editor of Supply Management
5 September 2016

The UK services sector rebounded back into growth in August to record the biggest rise in 20 years.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index rose to 52.9 in August, up from its post-Brexit contraction of 47.4 in July and against the neutral reading of 50.

Business confidence also returned to its pre-referendum level with firms citing export opportunities, stable markets, product launches and reduced uncertainty. However, overall strength of sentiment remained relatively subdued.

New work rose at the fastest pace in four months and companies linked greater demand to new clients and higher export business and tourism linked to the weaker pound.

Input price inflation accelerated to a 33-month record in August, linked to the weak pound and rising fuel and labour costs, and service providers raised their own prices at the sharpest rate since January 2014.

David Noble, group CEO, CIPS, said: “Business optimism ricocheted back to pre-Brexit levels, reassured by market stability and clients bringing dormant projects back to life. Whether this steadiness continues will largely depend on the sector’s reaction to the UK government’s approach to the Brexit negotiations as the sector keeps one eye on business as usual and one eye on possible obstacles ahead.”

Chris Williamson, chief business economist at IHS Markit, said: “It remains too early to say whether August’s upturn is a dead cat bounce or the start of a sustained post-shock recovery, but there’s plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate. Many companies are seeing business return to normal either simply by customer confidence rising or a stoic determination to buck Brexit and carry on regardless.”

But he added: “Many companies remain worried about the outlook and how the economy will fare in the event of Brexit, suggesting that political and economic uncertainty is likely to prevail in coming months, subduing growth.”

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