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Recession fears 'fade' as UK service sector grows Recession fears 'fade' as UK's service sector grows
(about 1 hour later)
The UK's dominant services industry rebounded sharply in August, according to a closely-watched survey. The UK's services industry rebounded strongly in August, suggesting the country will "avoid recession", according to a closely-watched survey.
The Markit/CIPS purchasing managers' index showed activity in UK services saw its largest month-on-month rise in the survey's history.The Markit/CIPS purchasing managers' index showed activity in UK services saw its largest month-on-month rise in the survey's history.
The index rose from 47.4 in July to 52.9 in August. A score above 50 indicates expansion. The index rose from 47.4 in July to 52.9 in August. A score above 50 indicates growth.
It adds to recoveries in manufacturing and construction to suggest "recession will be avoided", Markit said. It effectively takes services back to pre-Brexit levels, Markit said.
The pound rose sharply after the report was released, jumping 0.6% against the dollar to $1.3366. The return to growth for the services industry, which accounts for about 80% of the UK economy, adds to recoveries in manufacturing and construction in August.
Chris Williamson, chief business economist at Markit, said it remained too early to say whether August's upturn was the "start of a sustained post-shock recovery, but there's plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate". Sterling rose sharply after the release of the PMI survey, rising 0.6% against the dollar before falling back slightly to just over $1.33.
'Buck Brexit'
Chris Williamson, chief business economist at Markit, said last month's recovery in services wiped out a shock fall in July following the Brexit vote.
"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," he said.
It is still too early to call the "start of a sustained post-shock recovery, but there's plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate", he said.
He added: "Many companies are seeing business return to normal either simply by customer confidence rising or a stoic determination to 'Buck Brexit' and carry on regardless."He added: "Many companies are seeing business return to normal either simply by customer confidence rising or a stoic determination to 'Buck Brexit' and carry on regardless."
The UK services industry, which includes financial services through to cafes and shops, accounts for about 80% of the UK economy. Computing and IT, financial services, hotels and restaurants contributed to the recovery, according to the survey.
"The services PMI completes a triple-whammy of good economic data for the UK in the last three trading sessions and indicates that businesses are returning to normal after the initial shock of the vote rocked confidence," said Neil Wilson, a market analyst at ETX Capital.
'Overstates recovery'
Other analysts, however, warned the survey should be treated with some caution.
"Just as the July survey probably overstated the economy's underlying weakness, the August survey probably overstates its subsequent recovery," said Scott Bowman, UK economist at Capital Economics.
Taken together, the readings for the last two months suggest the economy will fail to grow in the third quarter, he said.
Growth in services was already subdued before the EU referendum, with a score of 52.3 in June - the lowest in more than three years.