Monday 5 September 2016 9:37 am

Pound bounces as services sector storms back to growth in August

The pound jumped against the dollar in early trading in London after new figures showed the UK's most dominant sector stormed back into growth in August.

Markit's purchasing managers' index for the UK services sector hit 52.9 in August, against expectations of 50.0, and up from July's 89-month low of 47.4. Considering any figure below 50 suggests a contraction, that's pretty good going.

Read more: London businesses hardest hit in latest PMI figures as employment falls

The figure caused the pound to jump 0.45 per cent against the dollar to $1.3354, and 0.29 per cent agaisnt the euro, to €1.1953.

Bucking Brexit?

Markit suggested fears over the impact of the Brexit vote had been greatly exaggerated. 

"The month-on-month gain in the index, at 5.5 points, was the largest observed over the 20-year survey history," it said. 

“It remains too early to say whether August’s upturn is a dead cat bounce or the start of a sustained post-shock recovery," added Chris Williamson, Markit's chief business economist. 

"But there’s plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate. Many companies are seeing business return to normal either simply by customer confidence rising or a stoic determination to 'Buck Brexit' and carry on regardless."

But there's still weakness

But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, added GDP could still be hit by the EU referendum.

"The initial economic shock of the Brexit vote has worn off quickly, but it still points to a sharp slowdown in GDP growth in the third quarter.

The business activity index points to three-month-on-three-month growth in services output picking up to a meagre 0.2 per cent or so in August, from -0.5 per cent in July. Meanwhile, the subdued reading of the new business index, 52.7, signals that the recovery likely won’t gain further momentum over the coming months."

Last week figures for the manufacturing sector suggested it had experienced a similarly encouraging rise in sentiment, with the index rising to 53.3 in August. 

But the construction industry remained in contraction, only managing to muster a reading of 49.3. 

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