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UK services activity contracted by less than first estimated in September, according to a closely watched survey published on Wednesday.
The final S&P Global/Cips UK services PMI business activity index, a measure of the health of the sector, was 49.3 last month — down slightly from 49.5 in August, but well above the flash estimate of 47.2.
After the flash PMI estimate was published on September 22, the pound dropped to a six-month low against the dollar amid fears of an imminent UK recession.
At the time, S&P Global reported that the Bank of England’s Monetary Policy Committee had seen the flash estimate in advance of its meeting on September 21, contributing to the knife-edge decision to hold interest rates at 5.25 per cent, a 15-year high.
Samuel Tombs, economist at consultancy Pantheon Macroeconomics, said the “large” upward revisions meant the final PMI figures were “more plausible”.
He forecast that the economy would grow marginally in the rest of 2023 as the impact of industrial action faded and consumer confidence rose.
The PMI indices are closely watched by policymakers and investors for early signs of trends in economic growth and inflation. This is because they track business sentiment nearly in real time on a variety of issues, ranging from output to price growth and employment.
However, many economists have warned that the surveys have not been a good predictor of economic growth since the onset of the pandemic.
The final PMI services reading across the eurozone also saw upward revisions from the initial estimates, although to a much smaller extent than the UK.
Despite the upward revision, the final UK figure, based on the complete set of panellists responding to the survey, was still marginally below the 50 threshold indicating a majority of businesses reporting a contraction in activity.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said: “Although only modest and slower than indicated by the earlier ‘flash’ PMI reading, the downturn in UK service sector output was the greatest seen since the beginning of this year and stood in contrast to solid growth during the spring months.”
Panellists attributed reduced volumes of service sector activity to sluggish business conditions, heightened risk aversion among clients and downward pressure on demand owing to rising borrowing costs.
Service providers also reported a fall in employment, in part because of cost considerations, and the rate of job shedding was the fastest since January 2021.
Alex Kerr, economist at consultancy Capital Economics, said the 0.5 per cent fall in gross domestic output between June and July, and the decline in the composite PMI index, which averages services and manufacturing, from 50.8 in July to 48.5 in September suggested “some of the resilience in activity in the first half of the year has been lost”.
