U.K. service sector PMI index rises above expectation in August, economic activity likely remained stable in Q3

U.K. service sector PMI index came in above expectation in August, after manufacturing and construction PMIs saw disappointing prints for the same month earlier this week. The above expected print gave some comfort over the U.K.’s near-term growth outlook, noted Lloyds Bank in a research report.

The headline PMI index rose to 54.3 in August from July’s 53.5, as compared with expectations of a rise to 53.9. Delving into details, the flow of new business orders rose to 54, while the measure of outstanding work continued to be above 50, although less so than the previous month’s 51.3.

Additional new business and some rise in outstanding work augur well for the activity outlook in the months ahead. Accordingly, companies reacted to this rebounded backdrop by seeking to stimulate operating capacity through increased headcount. Companies registered an acceleration in the rate of hiring, pushing the employment component of the index to 52.5 from 50.9. Nevertheless, some firms reported that shortages of suitably skilled labor had restricted employment growth throughout the service sector.

Still, the overall optimism in the sector continues to be capped by ongoing Brexit-related uncertainty. Companies underlined that this had further been a drag on new business growth in August and had reduced clients’ appetite to spend. Therefore, long-term expectations pared back in August, stated Lloyds Bank.

Still, with stronger global economic conditions providing positive tailwinds, the business expectations index continued to be above the average recorded in the second half of 2017. The pace of cost rises picked up as stronger oil prices resulted in higher fuel charges, along with further rises in staff wage costs.

As a result of the solid outturn in today’s report, the fall in the manufacturing PMI was more than offset, pushing the composite PMI up to 54.2 in August.

“This, alongside the still-elevated level of the construction PMI, suggests that economic activity has remained steady so far in Q3. According to Markit, the PMI surveys point to quarterly GDP growth of around 0.4% in the third quarter”, added Lloyds Bank.

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