UK service sector perks up in August, adding to resilience signs

By Andy Bruce

Aug 21 (Reuters) - Britain's services sector, the engine of its economy, perked up unexpectedly this month, according to a survey on Friday that added to signs of resilience despite the conflict in the Middle East.

The S&P Global Flash UK Services Purchasing Managers' Index rose to a six-month high of 52.8 in August from 52.1 in July. That was above all the forecasts in a Reuters poll that had pointed to a fall to 51.8.

Companies cited improving domestic conditions — a picture backed by news earlier in the day that consumer confidence rose this month to its highest level since August 2024, shortly after the Labour government was elected under Prime Minister Keir Starmer.

Friday's surveys added to signs of surprise strength in the economy, a bonus for Starmer's successor Andy Burnham and for finance minister John Healey, who hope to defy forecasts for a slowdown after robust economic growth in the first half of the year.

Data company S&P Global said its figures were consistent with economic growth of around 0.3% in the third quarter, which would approach the outturn in the second quarter.

"The expansion is being helped by sunny weather and tech investment, though as expected we have seen some softening of growth in the manufacturing sector as precautionary stock building cools," said Chris Williamson, chief business economist at S&P Global.

Official data last week also pointed to strong tech investment as the AI boom increasingly makes itself felt in Britain's economic performance.

The flash PMI's gauges of input and output prices partially rebounded this month after falling in July, reflecting a rise in global energy prices over the last few weeks, with no sign of the Iran war nearing an end.

Employment in the services sector continued to decline, albeit at the slowest pace since last October.

"The data suggest the Bank of England looks likely to keep a hawkish bias but will stay cautious, holding off any rate hikes until the growth and inflation trajectories become clearer," Williamson added.

Despite the uncertainty, optimism among services companies hit a seven-month high this month.

The PMI for the manufacturing sector cooled to a five-month low of 51.5 in August, as expected, from 51.9 in July.

The composite PMI, which combines manufacturing and services, rose to a four-month high of 52.5 from 52.2, against expectations for a fall to 51.6.

(Reporting by Andy Bruce; Editing by Hugh Lawson)