The UK private sector saw its fastest rise in output since April, with the composite PMI output index rising to 53.4. This follows July’s 52.8, a four-month high. Meanwhile, the services sector business activity index came in at 53.3, up from 52.5 in July, also a four-month high.
In contrast, the manufacturing output index fell to 54.2 from 54.9 in July, its lowest level in two months. However, the manufacturing PMI rose to 52.5, up from 52.1 in July, its highest level in 26 months.
The data suggests that economic activity in the UK is recovering significantly, with some sectors continuing to improve, despite the divergence in performance between the manufacturing and services sectors.
August’s PMI data pointed to another strong expansion in UK private sector output. This expansion was supported by a significant increase in new orders. As a result, business activity improved significantly, contributing to a larger increase in employee hiring, recording the fastest rate of employment growth since June 2023. Survey respondents also reported that more optimistic assessments of the domestic economic outlook prompted firms to boost their capacity to expand.
At the same time, inflationary pressures slowed across the private sector in August, with input costs rising at the slowest pace since January 2021. This slowdown largely reflects a significant easing in cost pressures within the services sector. By contrast, higher freight and raw material costs kept input price inflation in the manufacturing sector stronger than in the first half of 2024. The seasonally adjusted global PMI for the UK came in at 53.4 in August, up from 52.8 in July. This rise reflects continued strong business activity in the private sector, indicating a notable positive momentum.
Relatively strong rise in total new business
Manufacturing output rose at a particularly sharp pace in August (index at 54.2), with the latest reading slightly weaker than July’s two-and-a-half-year high. Meanwhile, service providers reported an acceleration in business activity growth to its strongest level in four months (index at 53.3), driven by increased spending by businesses and consumers.
Total new order volumes rose at a solid pace in August, continuing the upward trend seen since December 2023. Survey respondents typically commented on improving sales pipelines and increased willingness to spend among customers, particularly in domestic markets. This was linked to softer inflationary pressures and lower borrowing costs, along with hopes for a sustained recovery in economic conditions in the UK. By contrast, new business from abroad fell slightly in August, due to a further decline in export sales in the manufacturing sector. Goods producers pointed to weaker demand from EU customers. Despite the relatively strong rise in total new business, the latest data indicated the fastest decline in backlogs since November 2023. This mostly reflects a sharp decline in unfinished business in the services economy. Lower backlogs are often attributed to hiring additional staff and ongoing efforts to boost operating capacity. August data indicated that private sector job creation rose to its fastest rate in 14 months, with employment levels rising in both manufacturing and services. Positive sentiment toward the near-term business outlook also helped support the gradual acceleration in employment growth. Business expectations for the year ahead were relatively upbeat in both manufacturing and services, though softened since July. Survey respondents pointed to improved sales pipelines and hopes for increased domestic investment spending. Firms also pointed to reduced political uncertainty and the potential for further interest rate cuts, along with more favorable economic conditions.
The latest data indicated that input cost inflation
The latest data suggested that input cost inflation eased to its lowest level in just over three-and-a-half years in August. This was driven mainly by a renewed slowdown in cost pressures in the services sector amid reports of falling prices for goods and services. Commenting on the preliminary PMI data, S&P Global Markets’ chief business economist said: “August saw a positive mix of solid economic growth, improved job creation and lower inflation, as the provisional PMI survey data suggests.” He added: “Both manufacturing and services reported strong output growth and increased job gains, while business confidence remains high.” He explained: “Although GDP growth may appear to be slowing in the third quarter compared to the strong gains seen in the first half of the year, the PMI suggests that the economy will grow at a solid quarterly rate of around 0.3%.” He also noted that “inflationary pressures slowed further in August, particularly in the services sector, which has been a key concern for the Bank of England.” Accordingly, the latest survey data supports a reduced likelihood of interest rate cuts. However, persistently high inflation in the services sector means that policymakers will continue to move cautiously.”
The composite output index was the highest since April and pointed to a strong increase in private sector business activity. The headline index has now been above the 50.0 threshold for ten consecutive months.
Supplier surcharges fell and market conditions became more competitive. However, service providers noted a rise in wage inflation. In the manufacturing sector, higher purchase prices were mostly due to higher freight bills and material costs. Efforts to pass on rising input costs led to another strong increase in prices charged by private sector firms in August. However, the latest rise was among the slowest since the start of 2021.
