UK services PMI rises past forecasts in August

UK service sector activity picked-up to its second-highest level since February last month, buoyed by improved business conditions, according to the results of perhaps the most widely-followed survey of conditions in the sector.

As a result, hiring growth accelerated to its fastest clip for six months, although firms' confidence around the outlook for the year-ahead ebbed to its lowest since March, as a result of the uncertain political climate and the unpredictable impact of Brexit on clients' business operations.

IHS Markit's services sector Purchasing Managers' Index rose from a reading of 53.5 for July to 54.3 in August, beating forecasts for an increase to 53.9.

According to Chris Williamson at IHS Markit, Wednesday's data was likely to come as a relief to policymakers at the Bank of England, following their decision to hike interest rates earlier in the month.

However, the figures also served to underline the economy's reliance on services activity, particularly on the "especially strong" financial services sector.

"Business expectations for the year ahead meanwhile sank markedly lower, down across all three sectors to one of the lowest levels seen since the EU referendum, largely reflecting increased anxiety over Brexit negotiations," Williamson said.

"Given the increasingly unbalanced nature of growth and the darkening business mood, risks to the immediate outlook seem tilted to the downside."

In an immediate reaction, the pound was lower by 0.28% to 1.28178.

For her part, Ruth Gregory at Capital Economics noted the improvement in hiring, interpreting it as a sign that companies remained "confident enough" in the outlook for demand to take on more people at an increased pace.

"The chances of an interest rate hike at next week’s MPC meeting still look extremely slim," she said.

"Given our assumption that a Brexit deal will only be secured at the eleventh hour, we don’t expect the MPC to raise rates again until May 2019, after the UK has left the EU."