Services sector output beats forecasts in July (just)

Emma Haslett
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The services sector's PMI rose higher than expected in July (Source: Getty)

Output in the UK's services sector beat expectations in July, new figures have shown, despite rising food prices.

The pound rose 0.2 per cent against the dollar to $1.3252 in morning trading as Markit's purchasing manager's index (PMI) for the services sector rose to 53.8 in July, up from 53.4 in June and against expectations of 53.6. Any figure above 50 suggests expansion in the sector.

The research suggested businesses in the sector, which makes up the largest portion of the UK's economy, continued to hire despite uncertainty, with the pace of job creation rising to its strongest in a year and a half.

But with input cost inflation remaining strong in July as food prices, energy bills and salary bills rose, firms also hiked their prices by the most in three months.

Read more: UK economy is doing ok, say analysts... but it could've been so much better

Signs of weakness

Despite the encouraging rise, there were signs of pervading weakness in the sector: although the rate of new business expansion was "solid", it was one of the weakest since last autumn, Markit pointed out.

The news followed a surprisingly weak reading for the construction sector in July. However, Markit's reading for the manufacturing sector was stronger, with the PMI for the sector bouncing to 55.1, against consensus expectations of 54.4.

"While the current picture remained one of an economy showing overall resilience in the face of concerns about the outlook, the subdued level of business optimism suggests it’s likely that growth will at least remain modest and could easily weaken in coming month," said Chris Williamson, chief business economist at IHS Markit.

“Firms’ prospects for the coming year have slipped to a level which has previously been indicative of the economy stalling or even contracting, having taken a lurch downward since the general election, largely reflecting heightened uncertainty about the economic outlook and Brexit process.”

The news came ahead of the Bank of England's latest inflation report, due to be published at midday today.

"The services PMI remains consistent with sub-par growth, despite its modest improvement in July, suggesting that the economy still isn’t strong enough to warrant higher interest rates," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"On past form, the weighted average of the manufacturing, construction and services PMIs in July is consistent with quarter-on-quarter growth in GDP of about 0.3 per cent, the same as in the second quarter."

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