UK services sector rebounds strongly after post-Brexit wobble, Markit PMI shows

The UK services sector bounced back strongly last month after the sharp contraction in the weeks after the Brexit vote, according to a monthly survey of purchasing managers in the industry.

Services sector activity rose to 52.9, according to a IHS Markit/CIPS August UK services purchasing managers' index (PMI) survey that showed a rebound from the 47.4 figure in July and also beat the consensus economist forecast of 50.0.

A reading above 50.0 for the PMI's seasonally adjusted reading indicates the sector is growing, while a figure below indicates contraction.

The month-on-month gain in the services sector of 5.5 points was, Markit said, the largest seen in the survey's 20-year history, following the record fall of 4.9 points in July, helped by a return to growth in new businesses and greater demand that businesses said was due to the weaker pound, higher tourism and a bounce back in confidence following an initial Brexit judder.

The rate of expansion in August was also the fastest since May, but weaker than the long-run survey average.

Combined with an even stronger rise in the manufacturing PMI last week, Markit's composite PMI for August rebounded to 53.6 in August to more than recover from the fall to 47.6 the previous month and beating the consensus estimate of 50.8, which implied the economy will eke out modest growth in gross domestic product in the third quarter.

Markit said the renewed expansion of services activity was helped by a return to growth of new business in August, with new work increasing at the fastest pace in four months after the sharp fall in July.

“While July’s decline had been largely attributed by companies to heightened political and economic uncertainty following the UK’s 23 June vote to leave the EU, August’s increase reflected a marked improvement in sentiment," said Markit's chief economist Chris Williamson.

"Businesses have reported that business and consumer confidence revived in August, with an immediate impact on demand."

Assuming further growth is signalled by the September PMI surveys, Williamson this will mean the economy will eke out a modest GDP expansion of around 0.1% in the third quarter.