The U.K. service sector returned to growth unexpectedly in August, after contracting sharply in July on Brexit vote, suggesting that the economy is likely to avoid an imminent recession, survey data from Markit showed Monday.
The services Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index rose notably to 52.9 in August from 47.4 in July.
The score was forecast to rise moderately to 49.0. A reading above 50 indicates expansion.
The monthly rise of 5.5 points was the largest observed over the 20-year survey history, following a record decline of 4.9 points in July.
"It remains too early to say whether August's upturn is a dead cat bounce or the start of a sustained post-shock recovery, but there's plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate," Chris Williamson, chief business economist at IHS Markit, said.
While the economy currently seems to be resilient, there is still a long, uncertain road ahead, IHS Global Insight Economist Howard Archer, said.
Archer noted that there remains a very real possibility that the economy will increasingly deflate over the coming months as business caution over investment and employment is fueled by Article 50 being triggered.
Markit said that following abrupt contractions in output and new business in July linked to disruption related to the outcome of the EU referendum, the latest data suggested a return to growth as companies reported that uncertainty had subside.
New work grew at the fastest pace in four months after falling at the strongest rate since March 2009. At the same time, job creation in the sector resumed in August. Nonetheless, the rate of workforce growth was weak.
Service sector confidence returned to its pre-referendum level in August, having spiked lower in July due to uncertainty generated by the Brexit vote.
The weak pound has lifted inflationary pressures. Input price inflation accelerated to a 33-month record in August on the weakness in pound and rising fuel and labor costs.
Subsequently, service providers raised their own prices at the sharpest rate since January 2014.
by RTT Staff Writer
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