Key findings: In August, the UK composite PMI output index rose to 53.4, up from 52.8 in July, its highest level in four months. The services PMI business activity index rose to 53.3, up from 52.5 in July, also a four-month high. In contrast, the manufacturing output index came in at 54.2, down from 54.9 in July, its lowest level in two months. The manufacturing PMI came in at 52.5, its highest level in 26 months. Data was collected between 12 and 20 August.
August PMI data indicated continued strong expansion in UK private sector output, supported by a strong increase in new orders. This uptick in business activity and resilient demand conditions led to a further increase in employment, with the fastest rate of employment growth since June 2023. Survey respondents also reported that a more upbeat domestic economic outlook spurred efforts to expand business capacity.
At the same time, inflationary pressures across the private sector slowed in August, with input costs rising at the slowest pace since January 2021. This was largely due to a significant easing in cost pressures in the services sector. Conversely, input price inflation in the manufacturing sector remained stronger due to higher freight and raw material costs, making it higher than in the first half of 2024. With the seasonally adjusted UK Global PMI at 53.4 in August, compared to 52.8 in July, the index hit its highest level since April. This rise signals a strong increase in business activity in the private sector. The headline index has remained unchanged above the 50.0 threshold for ten consecutive months.
Business activity grows at strongest in four months
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 in four months (index at 53.3), driven by higher corporate and consumer spending.
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 UK economic conditions. 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 a relatively strong rise in total new work, the latest data showed the fastest fall in backlogs since November 2023. This mostly reflects a sharp drop in unfinished work in the services economy. Lower backlogs are often attributed to hiring additional staff and ongoing efforts to boost operating capacity. August data showed private sector job creation rose to its fastest rate in 14 months, with employment levels rising in both manufacturing and services. Positive sentiment towards the near-term business outlook also helped support the gradual acceleration in employment growth. Business activity 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 favourable economic conditions. Meanwhile, inflationary pressures eased further
Input cost inflation eased to record low
Finally, the latest data showed that input cost inflation eased to its lowest level in more than three and a half years in August. This decline was mainly due to a renewed slowdown in cost pressures within the services sector, as companies reported lower surcharges from suppliers and improved competitive market conditions.
However, service providers noted an increase in wage inflation. In the manufacturing sector, purchasing prices rose due to higher costs for shipping and raw materials, such as pulp, paper and plastics. Efforts to pass on these increased costs to customers helped boost selling prices charged by private sector companies in August. However, this was among the slowest increase since the start of 2021. Commenting on the preliminary PMI data, Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “August saw a marked improvement, particularly in the services sector, which has been a major concern for the Bank of England.
The latest survey data therefore helps to reduce the likelihood of further rate cuts. However, the continued high inflation in the services sector suggests that policymakers will take cautious steps.” August showcases a positive mix of strong economic growth, improved job creation and lower inflation, according to provisional PMI survey data. Both manufacturing and services saw solid output growth and increased job gains, with business confidence remaining at historically high levels. Although GDP growth may look set to slow in the third quarter compared to the strong gains in the first half of the year, the PMI points to the economy expanding at a solid quarterly rate of around 0.3%.
