UK to avoid recession?

  | James Innes

According to a well-respected survey, the UK, contrary to post-Brexit fears, is likely to avoid recession. The Markit/CIPS purchasing manager index (PMI) showed an increase in UK services from 47.4 in July, to 52.9 in August, the biggest monthly jump in the index’s history. A score above 50 indicates growth, and the August result effectively takes the UK services sector back to pre-Brexit levels.

The PMI is a survey among business managers, assessing whether their firm’s activity has increased or decreased compared with the previous month.

This return to growth for UK services – which accounts for nearly 80% of the UK economy - adds to data published last week which indicated recovery in the manufacturing and construction sectors.

IT and computing, Financial Services, hotels and restaurants contributed to the service sector recovery, according to the survey.

Chris Willamson, chief economist at Markit commented “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 would be avoided.” He also noted that whilst it was too early to call the “start of a post-shock recovery”, there was enough anecdotal evidence to indicate that the initial shock caused by the June vote has begun to dissipate.

 Some analysts, however, are less bullish and believe the PMI’s findings should be regarded with caution. Scott Bowman, UK economist at Capital Economics, noted “Just as the July survey overstated the economy’s underlying weakness, the August survey probably overstates its subsequent recovery.”

Even before the EU referendum, service sector growth had begun to stall, with a score of 52.3 in June representing the lowest for more than 3 years.

Meanwhile, Manufacturing body EEF said that output from UK factories slowed down in the last 3 months and is unlikely to grown again until the end of the year.

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