UK Services Strengthen As Costs Intensify

Britain’s economy showed broader signs of improvement in August, with stronger services activity, rising business confidence and a more optimistic consumer mood suggesting that momentum strengthened after a softer second quarter. The recovery remains uneven, however, as renewed cost pressures continue to test businesses and households.

The S&P Global Services PMI rose to 52.5 from 52.1 in July, its strongest reading since April and the second consecutive month of expansion. Businesses reported improved spending from both companies and consumers, while confidence among services firms also strengthened. The improvement was notable after activity weakened earlier in the summer under pressure from higher energy costs and geopolitical uncertainty.

Other indicators have reinforced the brighter picture. Lloyds Bank’s business confidence index climbed four points to 53 per cent in August, its highest since March, supported by stronger customer demand and greater optimism around companies’ own trading prospects. Consumer sentiment has moved in the same direction. GfK’s confidence index rose to a two-year high, while willingness to make major purchases reached its strongest level since December 2021.

There were also encouraging signals from manufacturing. Although factory activity slowed slightly in August, manufacturers increased hiring at the fastest rate in more than two years. Retail spending has been less consistent, but sales remained stronger across the summer despite a decline in July.

The improvement does not remove the economy’s main constraint. Businesses reported renewed increases in input costs and selling prices during August, while higher energy and staffing expenses continue to squeeze margins. Britain therefore enters autumn with a firmer economic pulse, but sustaining that momentum will depend on whether improving confidence can withstand another period of elevated costs.