Investing.com – Activity in the U.K. service sector continued to recover from July’s low, bolstering optimism over the health of the British economy as the sector makes up approximately 80% of gross domestic product, industry data showed on Monday.
In a report, market research group Markit said the seasonally adjusted Markit/CIPS services purchasing managers’ index (PMI) dropped to 52.6 last month from a reading of 52.9 in August.
Analysts had expected the index to fall further to to 52.0.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
Markit indicated that the U.K. service sector continued to recover from “July’s EU referendum-induced shock” with new business growing at the fastest rate since February.
The research firm did note that the weakening sterling led to the largest input cost rise since February 2013.
“The survey results suggest that the economy has regained modest growth momentum since the EU referendum, with further service sector expansion accompanied by a return to growth in construction and an especially strong revival of manufacturing.,” Markit chief economist Chris Williamson said in the report.
Williamson highlighted that the combined reads from these three sectors suggested that growth was the strongest since January, “fuelling greater job creation as companies shrugged off short-term Brexit worries and enjoyed the benefits of a weaker currency.”
This economist forecast that the improvement translated to growth of approximately 0.1% for the third quarter, but insisted that the growth was weakened by the July-low that was impacted by Brexit uncertainty.
Williamson said that September's data will cast doubt on the need for further stimulus from the Bank of England at this time, but widespread concern about the potential future impact of the Brexit means that “policy action later in the year cannot be ruled out.”
Immediately following the report, GBP/USD was trading at 1.2726 from around 1.2737 ahead of the release of the data, while EUR/GBP was at 0.8821 from 0.8809 earlier.
Meanwhile, European stock markets traded lower, with London’s FTSE 100 falling 0.22%. The Euro Stoxx 50 lost 0.68%, France's CAC 40 traded down 0.62%, while Germany's DAX shed 0.69%.