Business activity at its strongest in a year despite Budget fears

Private sector output was at its strongest in a year last month, as Britain’s dominant services sector helped offset an ongoing decline in manufacturing. Closely-watched data from S&P Global showed new business volumes expanded at the strongest pace since October 2024 in August.

The update will provide a boost to Chancellor Rachel Reeves, who insisted on Wednesday that ‘Britain’s economy isn’t broken’ as she set the date for her upcoming Budget as 26 November. ‘If renewal is our mission and growth are our challenge, investment and reform are our tools,’ she said in a statement.

However, new figures also showed fresh evidence of ‘aggressive’ job cuts and higher input prices, which could lead to pricier consumer bills. The S&P Global Composite index registered at 53 in August, up from 51.5 in July, and staying in positive territory above the neutral 50 mark for the fourth consecutive month.

It came as the UK Services PMI Business Activity Index jumped from a reading of 51.8 in July to 53.6 in August, helping to offset Manufacturing PMI deteriorating from 48 to 47.3. Martin Beck, chief economist at WPI Strategy, said the figures point to GDP growth of 0.4 per cent for the third quarter of the year.

He added: ‘This would build on the faster-than-expected expansion in the first half of this year and reinforces WPI Strategy’s view that consensus forecasts on the UK economy are too pessimistic. ‘Rising real pay, Bank of England rate cuts and receding memories of the Covid and energy price shocks of recent years should all encourage consumers and firms to save less and spend more.’

However, S&P Global said employment fell ‘at a solid pace’ in August across manufacturing and services, with bosses citing ‘elevated cost pressures’. It follows minimum wage hikes and the introduction of higher employer national insurance contributions earlier this year, which have further increased costs for businesses.

Inflation is also well above the BoE’s target of 2 per cent and it is expected to peak at 4 per cent this month. ‘Prices charged by UK private sector companies increased at a robust pace in August,’ S&P Global added. Chris Williamson, chief business economist at S&P Global Market Intelligence, also cautioned ‘the demand environment remains both uneven and fragile’.

Firms are concerned about the ‘impact of recent government policy changes, as well as unease emanating from broader geopolitical uncertainty’, Williamson added, noting goods exports are ‘falling especially sharply’. Williams said: ‘Payroll numbers also continue to be cut at an aggressive rate by historical standards as firms cite weak order books and concerns over rising staff costs due to the policies announced in the autumn Budget , which also contributed to persistent inflation pressures.

‘While the rise in business activity signaled by the PMI alongside the uplift in inflation to 3.8 per cent in July lower the chances of further rate cuts this year, more data are required to assess both the sustainability of robust economic growth as well as the stickiness of the upturn in price pressures.’