Investing.com – Activity in the U.K. service sector returned to expansionary territory in August, 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) rose to 52.9 last month from a reading of 47.4 in July.
The month on month gain in the index of 5.5 points was the largest in the 20-year history of the survey
Analysts had expected the index to rise to 50.0.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
Markit pointed out that services output and new business both rose following prior month’s declines and that expectations improved from July’s 89-month low.
Furthermore, input prices rose at the sharpest rate since November 2013.
“A record rise in the services PMI adds to the encouraging news seen in the manufacturing and construction sectors in August to suggest that an imminent recession will be avoided,” Markit chief economist Chris Williamson said in the report.
However, Williamson noted that the three PMI surveys point to a stagnation so far in the third quarter which means September will be key to see whether the economy contracts or ekes out modest growth
Williamson also pointed to the fact that business confidence still remained at one of its lowest levels in the last four years.
“Many companies remain worried about the outlook and how the economy will fare in the event of Brexit, suggesting that political and economic uncertainty is likely to prevail in coming months, subduing growth,” he concluded.
In an immediate reaction to the report, the pound strengthened. GBP/USD was trading at 1.3357 from around 1.3332 ahead of the release of the data, EUR/GBP was at 0.8363 from 0.8386 earlier, while GBP/JPY traded at 138.19 compared to 137.84 previously.
Meanwhile, European stock markets traded mostly higher, with the exception London’s FTSE 100 down 0.21%. The Euro Stoxx 50 rose 0.30%, France's CAC 40 traded up 0.36%, while Germany's DAX advanced 0.30%.