(Bloomberg) -- Britain’s private sector companies reported their strongest growth in four months alongside cooling price pressures, suggesting the economy remained in a sweet spot for both the Bank of England and the new government.
S&P Global’s composite Purchasing Managers’ Index rose to 53.4 in August, up from 52.8 the previous month. That was slightly higher than the 53 figure expected by economists, with any reading above 50 indicating an expansion.
Meanwhile inflation relating to firms’ own costs cooled to the lowest since the start of 2021, mainly driven by the services sector - which is being watched closely by the BOE.
The figures suggest that a healthy rate of growth is not feeding inflationary pressures. While the central bank cut interest rates for the first time in over four years earlier this month, Governor Andrew Bailey said the strength of the recovery made him wary about loosening policy too quickly.
Money markets held wagers steady on interest-rate reductions, pricing a quarter-point cut by November and a 65% chance of another to follow by year-end. The pound rose 0.2% to $1.3114, while government bonds dipped, lifting the 10-year yield 2 basis points to 3.91%
Signs of a continued upturn are also a boost for Keir Starmer’s Labour government, which is relying on meeting lofty growth promises to find enough money to put into struggling public services.
“August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “The latest survey data therefore help lower the bar for further interest-rate cuts.”
He said the PMI pointed to the economy expanding at a quarterly rate of around 0.3%. That would be slower than the strong 0.7% and 0.6% rises in GDP seen in the first and second quarter, respectively.
Services - the UK’s largest sector - powered the growth in August, hitting a four-month high. The manufacturing PMI also climbed to its highest level in over two years.
Firms hired staff at the fastest rate in over a year, while they reported a fifth straight rise in new orders.
--With assistance from Rachel Evans.
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