A strong performance by the UK’s services sector in September has allayed concerns that a rebound after the Brexit vote panic would prove temporary.
The sector, which accounts for about three-quarters of the economy, beat City expectations with buoyant new order books and a rise in employment, continuing a post referendum recovery that followed a dramatic contraction in July.
The pound steadied on the news after falling earlier in the week to a fresh 31-year low of $1.27, while the FTSE 100 index of top companies retained most of its recent gains, losing 41 points to finish at 7033.
Markit, which compiled the services industry data, said the strength of the recovery meant the chances of a recession in the second half of 2016 had “all but evaporated”.
Combined with strong results in September for the manufacturing and construction sectors, the services data also dispelled any lingering fears that the Bank of England might cut interest rates before the end of the year.
The financial data provider said the purchasing managers’ index (PMI) for the sector expanded at a slightly weaker rate than August’s 52.9, but stayed above 50, the boundary between growth and contraction, at 52.6, and the slump to 47.4 seen in July.
Much of the boost came from a rise in new business, which rose at the fastest pace since February, helped by the fall in sterling.But Markit warned that the measure of company expectations remained very low by historical standards and businesses remained wary that the rebound could fizzle out.
Britain’s car industry enjoyed a record September for new vehicle sales, but said Brexit uncertainty could weigh on future demand.
The 66 plate helped to lift new car sales by a modest 1.6% last month compared with a year earlier to a total of 469,696, according to the Society of Motor Manufacturers and Traders (SMMT). Fleet sales increased 7.3%, offsetting a 1.7% decline in private buyer sales.
It was the highest number on record for September, typically a strong month for sales because of the plate change. The top three best sellers were the Ford Fiesta, Vauxhall Corsa and Volkswagen Golf.
Chris Williamson, the chief business economist at IHS Markit, which compiled the service sector survey, said: “The survey results suggest the economy has regained modest growth momentum since the EU referendum, with further service sector expansion accompanied by a return to growth in construction and an especially strong revival of manufacturing.
“Across the three sectors, the pace of economic growth signalled was the strongest since January, fuelling greater job creation as companies shrugged off short-term Brexit worries and enjoyed the benefits of a weaker currency.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the economy was still growing at levels well below those seen between 2013 and 2015. “On past form, the index in September is consistent with quarter-on-quarter growth in services output of just 0.2%, still a long way below its 0.6% average between 2013 and 2015.
“But fears that the slump in business and consumer confidence after the vote would translate immediately into lower spending appear to have been unfounded,” he said.
