Listen to this article
New business in Britain’s dominant services sector rose to a seven-month high in September, the latest indication that the UK has rebounded quickly from the shock of June’s Brexit vote.
The new Purchasing Managers’ Index showed overall activity in the sector was higher than most analysts expected — although it was down slightly at 52.6 in September from 52.9 in August, when it staged the biggest one-month gain in the survey’s 20-year history.
The data, from information provider IHS Markit and the Chartered Institute of Procurement & Supply (Cips), follow similarly robust surveys of the manufacturing and construction sectors earlier this week.
But the services sector, which accounts for almost 80 per cent of the UK economy, has been the focus of economic concerns post-referendum. The survey showed the weak pound, which dropped again to five-year lows against the euro on Wednesday, had fuelled the sharpest increase in sector input prices in more than three-and-a-half years.
“The survey results suggest that the economy has regained modest growth momentum since the EU referendum, with especially strong growth appearing in manufacturing,” said Chris Williamson, chief business economist at IHS Markit.
“The risk of recession in the second half of 2016 has therefore all but evaporated, and the solid PMI readings for September will cast doubt on the need for any further stimulus from the Bank of England in coming months.”
The September readings have helped push Britain’s combined PMI index to 53.7, from the 53.2 hit in August, marking the third quarter as the best since the start of the year, said Markit. A measure above 50 indicates growth; below 50 signals contraction.
Advocates of Brexit have seized on the run of good economic data to criticise the “project fear” campaign waged by Remain advocates, arguing it shows that Britain will be able to thrive outside the EU.
David Noble, group chief executive officer at Cips, said the increase in new business offered policymakers much-needed positive news for September. “Though the overall activity index still remained below its long-term average and had dipped slightly compared to August, it reflected a modest revival of fortunes for services businesses.”
Figures published by the Office for National Statistics last Friday showed the services sector, which makes up four-fifths of the UK economy, grew 0.4 per cent in July. This was above market expectations of 0.1 per cent growth and faster than in the two months leading up to the referendum.
Mr Williamson cautioned that despite the stronger-than-expected recent data, concerns remain whether it can continue once negotiations between the EU and Britain over Brexit begin.
The International Monetary Fund this week cut its forecast for the UK economy next year for the second time since the Brexit vote.
“The surveys indicate that the rate of economic growth remains far weaker than seen earlier in the year, and optimism about the year ahead continues to run at a subdued level, reflecting widespread concern about the potential future impact of Brexit,” Mr Williamson said. “The economy remains vulnerable to further setbacks and the need for policy action later in the year cannot be ruled out.”
Howard Archer an economist at IHS Global said that “with latest data and surveys largely pointing to resilience in the UK economy”, his estimate of third-quarter GDP growth had risen to 0.4 per cent quarter-on-quarter from 0.3 per cent.
Analysts said the latest data might have reduced prospects of another rate cut in November, which was tentatively signalled by the Monetary Policy Committee at its September meeting.
But Capital Economics, a research consultancy, warned against reading too much into the recent numbers and said there was still a good chance of a rate cut before the end of the year. It said the economy might be in a Brexit “sweet spot”, in which some of the positive developments since the vote — such as action by the MPC and the drop in the pound boosting export orders — had been felt before the adverse consequences, in particular a rise in inflation.
In a speech on Wednesday, Ben Broadbent, the deputy governor of the Bank of England, said that the UK economy had performed “somewhat more strongly” than the Bank had forecast in the wake of the Brexit vote. But he said the effects of uncertainty were likely to be “insidious” and he warned not to “over-interpret incoming data”.
The ONS said on Wednesday that recent data provided “further evidence that the economy has not shown any immediate signs of major negative effects following the EU referendum decision”.