Press release

5 Sep 2023 London, GB

August's services PMI pointed to a slight fall in activity – EY ITEM Club comments

August's services Purchasing Managers’ Index (PMI) pointed to a contraction in UK private sector activity. The EY ITEM Club still thinks GDP is likely to grow modestly in Q3 as the drags from some idiosyncratic factors fade. But today's evidence of a decline in new orders suggests that the long-term outlook is gloomy.

Press contact
James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

email LinkedIn
Related topics Growth
  • August's services Purchasing Managers’ Index (PMI) pointed to a contraction in UK private sector activity. The EY ITEM Club still thinks GDP is likely to grow modestly in Q3 as the drags from some idiosyncratic factors fade. But today's evidence of a decline in new orders suggests that the long-term outlook is gloomy.
  • Cost and price pressures eased again. Recent upside surprises in the official pay data mean another 25bps rate rise at this month's Monetary Policy Committee (MPC) meeting remains likely, if not certain. But today's more dovish survey results reinforce the EY ITEM Club’s view that the current rate rising cycle is close to a halt. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “August's final S&P Global/CIPS services survey signalled a slight fall in activity for the first time in seven months, with the headline PMI declining to 49.5 from 51.5 in July. Respondents linked the contraction to stretched household and corporate budgets. With August's manufacturing survey having reported a more significant fall in production, the composite PMI fell back to 48.6 from 50.8 in July.

“The forward-looking indicators in today's services survey remained downbeat as companies reported a slight decline in new business. This suggests that the services PMI balance may have further to fall in the near-term. That said, the EY ITEM Club still thinks Q3 GDP growth is likely to come in stronger than recent PMI readings imply. The quarter had an extra working day relative to Q2. In addition, with some public sector industrial disputes now resolved, the drag on public sector output from this source is also likely to be smaller. But even if the economy continues to eke out growth in Q3, today's survey suggests that the outlook further ahead looks increasingly gloomy.

“Slower activity in the services sector was accompanied by an easing in cost and price balances. Survey respondents noted that input cost inflation continued to cool despite still-strong wage growth. Meanwhile, there was evidence that firms were passing on some of the savings from lower cost pressures onto consumers as output price inflation also softened. The EY ITEM Club expects the MPC's attention is likely to remain on the official pay and services inflation data, where recent upside surprises mean another 25bps rate rise at this month's meeting is likely, if not certain. But the more dovish signals from today's survey are consistent with the EY ITEM Club’s view that we are now close to the end of the current monetary tightening cycle.”