Recent findings from a major survey shows that UK’s services sector is still continuing on the path to recovery despite fears that the Brexit vote suggests economic turbulence lies ahead.
The Markit/CIPS Purchasing Managers’ Index (PMI) for the UK services sector was 52.6 last month. The figure is slightly lower than the 52.9 seen in August, but it was still enough to suggest that recovery in the sector continue since it stays above than the 50 mark.
The September PMI also beat forecasts made by analysts in a survey by Reuters.
The PMI is typically arrived at based on responses received from purchasing managers and business decision-makers from a number of companies. Figures obtained are considered an indication of how the economy is faring given they are usually released prior to official GDP data being made public.
The services sector is a major driver of the UK economy, accounting for around three quarters.
Markit believes the latest services PMI makes it more likely that the Bank of England would not be taking any more stimulus action sometime soon. This belief is further strengthened by the improvement seen in the manufacturing sector, which posted its best PMI in two years on Monday.
“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 Markit.
Williamson said the risk of the economy experiencing a recession in the second half of the year has “all but evaporated.” The Bank of England may decide not to cut rates in November as some had expected.
Many financial experts have expressed worry that the UK’s departure from the European Union could potentially drag down the economy. Surveys of businesses after the June referendum suggested a sharp drop in confidence and activity.
Improvement in business activity started in August following a significant decline recorded in the month before. It was observed that new business was added to the services sector at the fastest pace since the second month of the year. An increase has also been seen in the number of jobs available in the sector.
Data from the Office for National Statistics (ONS) indicate a 0.4 percent growth in services in July, an improvement on the figure for the month before. The UK’s leading independent producer of official statistics said July figures did not appear to have been significantly affected by the outcome of the referendum. It cautioned however that volatility could be seen in monthly data.
Last week, the ONS also revised the growth rate of the economy in the second quarter to 0.7 percent, slightly up from an earlier estimate of 0.6 percent.
Input price inflation in September was the highest reported by services firms since February 2013. This resulted in fastest growth in charges since January 2014, the BBC reported.
While the services sector appears to be on continued recovery, Williamson noted that rate of expansion has slowed since the beginning of the year amid concerns of hard times for the economy after Brexit.