LONDON—The U.K.'s powerhouse service sector bounced back to growth in August following a July slump, a survey showed Monday, a fresh sign the British economy appears to be regaining its footing following the country's surprise decision to leave the European Union.
It comes on the heels of a string of data points, including on manufacturing and consumer confidence, suggesting that there was a recovery in August following a dip in July. But many economists cautioned that it is too early to say whether the economy will avoid a slowdown, and that uncertainty over the U.K.'s future ties to its biggest trading partner is likely to weigh on economicprospects for some time to come.
A closely watched gauge of activity in the services sector, which accounts for some 80% of annual economic output in Britain, rose to 52.9 in August, from 47.4 the prior month, according to financial information firm IHS Markit Ltd. A reading above 50 indicates an expansion. The 5.5-point monthly gain in the purchasing managers index, or PMI, was the largest observed in two decades, said IHS Markit, which compiles the index. It was the highest reading since May.
The pound gained on the news, rising 0.6% against the dollar to $ 1.3373 and 0.4% against the euro, to €1.1967.
IHS Markit said the survey of around 700 companies in a sector that spans industries including financial services, retailing and tourism found the pickup in activity in August was driven by a revival in business as the initial shock of the voters' June decision passed. Exporters said they were aided by a weak pound, which boosts the competitiveness of British services to foreign buyers.
Despite Monday's gains, sterling remains some 10% lower against the dollar than it was before the referendum. Job growth also resumed in August, albeit at a weak pace, survey respondents said.
Monday's results follow a strong reading of the manufacturing sector PMI index, which last week posted the joint-largest month-to-month jump in 25 years, placing it above June's pre-referendum level. Official data last month on retail sales showed Britons shrugged off the referendum result in July and kept spending, while a long-running household survey carried out by market research firm GfK Ltd. found consumer confidence recovered in August after collapsing in July.
The data suggest that fears the economy would immediately contract after the Brexit vote were "a little overdone," said Peter Dixon, a London-based economist at Germany's Commerzbank. But Mr. Dixon and other economists cautioned that it may take some time for the effects of June's decision to be felt across the economy.
Some analysts also pointed out that the survey data from July and August together suggests growth in the economy has been more or less flat since the referendum, making the economy's performance in September critical to avoiding a pronounced slowdown from the first half of the year. The first estimate of third-quarter growth will be published in October and official data on business investment is due in November.
Some policy makers have also urged caution. Prime Minister Theresa May, in an interview with the British Broadcasting Corp. aired Sunday, warned that extricating the U.K. from the EU won't be "plain sailing," despite the recent run of decent data.
"We must be prepared for the fact that there may be some difficult times ahead, but what I am is optimistic" about the opportunities ahead, she said.
IHS Markit said on Monday that its surveys of eurozone businesses found the currency union's economy slowed slightly in August, as Germany's services sector faltered. The final results of a survey of purchasing managers at 5,000 businesses operating in the manufacturing and services sectors indicated that activity slowed in August, expanding at the weakest pace in 19 months. The decline in the PMI follows other recent indications that the eurozone's already anemic recovery may be slowing, a slowdown that may fuel expectations the European Central Bank may soon add to its stimulus package.
The Bank of England cut its benchmark interest rate to a new low of 0.25% last month as part of a package of stimulus measures aimed at cushioning the economy following the referendum result. The central bank forecasts a sharp slowdown next year as uncertainty over the U.K.'s future prospects stunts investment, although officials said they expect the economy will probably avoid an outright recession.
U.K. Treasury chief Philip Hammond is due to spell out fresh tax and spending plans before the end of the year and many economists expect him to announce further measures to stimulate growth. "The Treasury will have to offset things such as falling business investment, as this does not lend itself to being offset by monetary policy," said George Buckley, a London-based economist at Deutsche Bank.
Write to Jason Douglas at jason.douglas@wsj.com
No comments:
Post a Comment