UK business activity expands for the second month in a row

According to the report from IHS Markit/CIPS, UK service providers reported another rise in business activity during August, with the rate of expansion accelerating to its fastest for over five years. Higher levels of output were primarily attributed to the reopening of the UK economy after the lockdown period in the second quarter of 2020. Survey respondents often commented on a strong recovery in domestic consumer spending. Despite the improvement in business conditions since the start of the coronavirus disease 2019 (COVID-19) pandemic, latest data indicated a setback for employment numbers. The rate of job shedding across the service sector was the steepest since May.

The headline seasonally adjusted UK Services PMI Business Activity Index registered 58.8 in August, up from 56.5 in July and in expansion territory for the second month running. Moreover, the latest reading was much higher than the average in the second quarter (29.8) and signalled the fastest pace of output growth since April 2015. Higher volumes of business activity were linked to a post-lockdown bounce in both business and consumer spending during August.

Latest data also pointed to the sharpest increase in new work since December 2016. Companies reporting a sustained decline in new work generally cited restrictions on international travel, ongoing global economic uncertainty due to the pandemic and falling export sales. August data indicated that new work from abroad decreased for the seventh successive month and the speed of the downturn was little changed since July.

Looking ahead, service sector firms remain optimistic overall that business activity will expand over the next 12 months. That said, the degree of confidence eased for the first time since March. A number of firms cited concerns about the strength of the recovery as government support measures taper off.