New orders help lift UK services PMI by most since April 2024

By David Milliken

LONDON (Reuters) -A surge in new business helped Britain's services sector to grow by the most in more than a year last month as concerns about U.S. tariffs eased, but firms remained worried about the prospect of tax rises at home, according to a survey published on Wednesday.

The S&P Global Purchasing Managers' Index for Britain's services sector rose to 54.2 in August from 51.8 in July, reaching its highest level since April 2024.

The figure was above a preliminary reading of 53.6 and comfortably exceeded the 50 mark which divides growth from contraction.

"August data highlights a welcome acceleration of output growth and a swift rebound in order books after July's dip, leaving the UK service economy on a much stronger footing as the end of summer comes into view," said Tim Moore, economics director at S&P Global Market Intelligence.

The composite PMI - which includes Monday's downwardly revised manufacturing PMI - rose to a 12-month high of 53.5 from 51.5 in July and an initial August reading of 53.0.

The upbeat data is likely to relieve finance minister Rachel Reeves as she looks ahead to her autumn budget. Many businesses blame her decision to hike their social security contributions in last year's budget for weak demand and higher costs.

Britain has the highest inflation among the Group of Seven advanced economies, and Wednesday's data showed services sector businesses raised prices last month by the most since April, when Reeves' increase in National Insurance Contributions and the minimum wage took effect. 

Firms reported the biggest increase in costs in three months and continued to reduce staff numbers. Employment as measured by the PMI has fallen for 11 consecutive months - the longest continuous period since a run between 2008 and 2010 aside from the COVID-19 pandemic.

Although Britain's economy grew faster than elsewhere in the G7 in the first half of this year, much of that reflected higher government spending and a temporary boost to exports as businesses sought to avoid some U.S. tariffs.

The PMI's measure of new business in the services sector saw its biggest one-month gain since March 2021, reflecting stronger consumer demand and the first rise in exports since April.

Expectations for future business volumes were also boosted by lower borrowing costs and reduced fears over U.S. tariffs.

"However, many service providers still commented on elevated government policy uncertainty and worries about forthcoming tax-raising measures expected in the autumn Budget," Moore said.

(Reporting by David Milliken; Editing by Hugh Lawson)