Services Bounce-Back Eases Recession Fears

Britain's dominant services sector bounced back in August adding to hopes that the UK will avoid a Brexit-driven recession.

The sector, which represents nearly four-fifths of the economy, recovered from a slump seen in July immediately after the referendum result, according to new figures.

Sterling climbed to a seven-week high against the US dollar on the better-than-expected purchasing managers' index (PMI) data.

The Bank of England will face less pressure to make a further interest rate cut this autumn if it looks as if the economy is going to avoid a recession.

The PMI (Other OTC: PMIR - news) data gave a reading of 52.9 for August - where the 50 mark separates growth from decline.

This was up from 47.4 in July, and the biggest one-month gain in the survey's 20-year history.

It follows better-than-expected recoveries from the smaller manufacturing and construction sectors,

The performance of the sprawling services sector - which ranges from law and PR firms to bars and hotels - is the most significant of the three because it dominates the economy and led the UK out of its last recession.

A slump in July had led to fears the UK was heading for a downturn.

Howard Archer, chief UK and European economist at IHS Global Insight, said the figures were encouraging and added to "increasing compelling evidence that the economy is still on its feet after June's Brexit vote".

Chris Williamson, economist at IHS Markit, said: "There's plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate."

However, Scott Bowman of Capital Economics struck a cautious note.

"Just as the July survey probably overstated the economy's underlying weakness, the August survey probably overstates its subsequent recovery." he said.

He added that the Bank of England still looked on course to cut interest rates further, from 0.25% to 0.1%, in November.