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The UK economy fell into contraction, led by a fall in the service sector, new data on Tuesday showed.
The UK seasonally adjusted composite PMI posted 48.6 points in August, down from 50.8 in July and below the crucial 50.0 no-change value for the first time since January. This comes in better than an earlier flash estimate of 47.9.
‘Reduced volumes of business activity were recorded in both the manufacturing and service sectors during August, with the former posting a much the faster rate of decline,’ S&P said.
The headline seasonally adjusted services PMI business activity index registered 49.5 in August, down from 51.5 in July and the lowest since January. This is better than an earlier flash estimate of 48.7.
The latest index reading signals a marginal decline in business activity from the last month.
‘Service providers saw customer spending reverse course during August as higher borrowing costs, subdued business confidence, and stretched household finances all acted to curtail sales opportunities’, said S&P economics director Tim Moore.
‘After a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand. Worries about the broader business climate also dampened spending in August, with firms suggesting that faltering UK economic growth and sticky inflation were weighing on the outlook.’
Looking ahead, S&P said that service sector companies remained optimistic about their growth prospects.
‘Around 48% of the survey panel predict an upturn in output during the next 12 months, while only 12% expect a decline. The degree of confidence nonetheless eased fractionally since July and was the lowest for seven months,’ it continued.
New data on Friday showed that the UK manufacturing PMI stood at 43.0 in August, down from 45.3 in July but above an earlier flash estimate of 42.5.
This shows that the contraction in the UK manufacturing sector worsened last month, reaching its lowest level in 39 months.
The composite PMI is a weighted average of the UK’s manufacturing and services PMIs, compiled by S&P Global from responses to surveys sent to 650 services companies and 650 manufacturers, with data collected between August 10 and 29.
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