3rd September 2025
- EY ITEM Club comments
- August’s final UK services Purchasing Managers’ Index (PMI) reported the strongest pace of activity growth for 16 months, while new orders and business optimism also improved. However, ongoing residual seasonality issues in the official data and drags from sectors not covered by the S&P Global Survey make it likely that GDP growth will be softer in Q3 than the PMIs imply.
- The survey also pointed to a further pickup in costs and prices growth. September's Monetary Policy Committee (MPC) meeting has always looked likely to see a 'hold'. But after the MPC dampened expectations for further near-term rate cuts at its August meeting, it’s a close call as to whether the committee decides to cut or hold in November.
Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “August's final S&P Global survey pointed to a strong rise in services activity, with the sector's PMI climbing to a 16-month high of 54.2, up from 51.8 in July. Survey respondents linked this to a large upturn in new orders in both domestic and external markets, amid improved demand conditions. The pickup in services activity growth was partially offset by another modest decline in production in August's earlier manufacturing survey, so the rise in the composite PMI was slightly smaller. Nevertheless, the composite PMI of 53.5, up from 51.5 in July, was still the strongest reading in a year.
“Composite PMI outturns in July and August suggest the strong GDP growth in the first half of 2025 may have carried through to Q3. But the read across from the composite PMI to GDP has been questionable in recent years. Ongoing residual seasonality issues in the official data are part of the story. Meanwhile, poorer performances from sectors not covered by the S&P Global survey, such as retail and health, the latter due to July's strikes by resident doctors, will likely mean GDP growth is softer in Q3 than the PMIs imply.
“On the inflation front, today's services survey also reported that costs and prices growth picked up in August, as businesses continued to adjust to higher labour costs. The MPC's September meeting has always looked likely to see rates held, but the Committee's hawkish pivot in August means that it’s a close call as to whether Bank Rate is cut or held in November.”
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