UK Economy Gains Momentum In August As Cost Pressures Rise

Britain’s private sector gained momentum in August, with activity in the dominant services sector expanding at its fastest pace since April, while rising input and selling prices pointed to renewed cost pressures, according to the final S&P Global UK Purchasing Managers’ Index (PMI).

The services PMI rose to 52.5 in August from 52.1 in July, extending growth for a second month and coming slightly below the flash estimate of 52.8. The composite PMI, which includes manufacturing, also increased to 52.5 from 52.2, its highest level since April. A reading above 50 indicates expansion.

The report stated that business and consumer spending strengthened after declining during the second quarter, supporting the improvement in operating conditions. Tim Moore, Economics Director at S&P Global Market Intelligence, said August data showed further gains in spending and improving conditions across the services economy.

Services Lead

The services sector remained the main driver of the improvement. The index measuring new work eased only slightly to 50.7 from 50.8 in July, remaining just above the threshold separating expansion from contraction.

Employment continued to fall, but the decline was the slowest since October 2025. S&P Global said improved sales pipelines and broader market conditions helped limit the pace of job losses.

Business confidence also strengthened, with optimism among services companies reaching its highest level since February despite concerns about inflation and the continuing economic effects of the US-Iran war.

The improvement comes against a backdrop of weak official growth earlier in the year. The Office for National Statistics estimated that UK GDP grew 0.7% in the three months to May, following growth of 0.8% in the three months to April. Services output increased 0.7% over the three months to May and was the largest contributor to overall growth.

Costs Pick Up

The latest PMI also showed a less favourable development for inflation.

S&P Global said more companies reported increases in the prices they charged customers as well as higher input costs after both measures slowed in July. The acceleration in cost burdens was driven largely by stronger price pressures in services, with firms reporting higher fuel and transport costs alongside increases in wages, food, technology and utilities.

The rise in firms’ selling prices is particularly significant for the Bank of England as it assesses how higher energy costs linked to the Middle East conflict are feeding through to the wider economy.

Recent ONS business survey data also showed that cost concerns remained widespread. In late July, 57% of businesses reported some degree of concern over energy prices, while 60% expressed concern over fuel prices. Among businesses with 10 or more employees, both figures were 70%.

The ONS survey also found that 29% of businesses with at least 10 employees were concerned about international conflict affecting supply chains over the next year, while 20% were concerned about shipping disruption.

The August PMI therefore presents a mixed picture for the UK economy: activity is recovering and confidence is improving, but stronger cost pressures and rising prices could complicate efforts to bring inflation down.