UK services sector shrinks in August

(Sharecast News) - Business activity in the UK services sector fell in August for the first time since January amid higher interest rates, according to a survey released on Tuesday. The S&P Global/CIPS services purchasing managers' index declined to 49.5 from 51.5 in July, coming in below the 50.0 mark that separates contraction from expansion but ahead of consensus expectations and the first estimate of 48.7.

Service providers highlighted caution among clients and fewer new business opportunities, linked to rising interest rates, squeezed disposable incomes and concerns about the economic outlook.

Meanwhile, the composite PMI - which includes manufacturing - came in at 48.6 last month, down from 50.8 in July, below 50.0 for the first time since January.

Tim Moore, economics director at S&P Global Market Intelligence, said: "Service providers saw customer spending reverse course during August as higher borrowing costs, subdued business confidence, and stretched household finances all acted to curtail sales opportunities.

"After a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand. Worries about the broader business climate also dampened spending in August, with firms suggesting that faltering UK economic growth and sticky inflation were weighing on the outlook.

"Adding to signs of reduced pressure on business capacity, the latest survey indicated that backlogs of work decreased at the fastest pace for over three years. Service providers appear to have gently put the brake on staff hiring, with job creation easing to its lowest since March."