The UK economy continued to strengthen slightly this month, while inflationary pressures continued to ease, news that sent the pound to a year's high on Thursday morning.
Economists said the details of the survey were encouraging for the Bank of England but not likely to force the monetary policy committee to cut rates for the second meeting in a row.
The preliminary purchasing managers index survey from S&P Global showed "solid" expansion of the UK private sector, boosted by strong new orders, faster hiring, while inflationary pressures moderated.
S&P's manufacturing sector index rose to 52.5 from 52.1 in July, higher than the 52.2 consensus forecast, while the larger services sector PMI reading came in at 53.3, up from 52.5 and beating the 52.8 estimate.
The flash UK composite PMI for August therefore rose to 53.4 from 52.8, ahead of the 53.0 expected.
On inflation, input costs rose at the slowest pace three and a half years, which S&P says was largely down to a "considerable easing" in cost pressures within the service sector, offsetting higher freight and raw material costs in manufacturing.
Economist Ashley Webb at Capital Economics said the small fall in the services output prices "suggests services inflation will continue to grind lower" and is consistent with services inflation continuing to ease from 5.2% in July to around 4.0% in about six months’ time.
Overall, Webb felt the data "probably won’t be enough" to trigger a back-to-back interest rate cut in September.
Peter Arnold, EY's chief UK economist, says, "with a majority on the monetary policy committee now less data-dependent, and signalling a cautious approach to loosening policy going forward, there was nothing in today's data that is likely to alter the MPC's thinking ahead of the September meeting".
On balance, he expects GDP growth to remain "solid" in the second half of 2024 but "does not think the economy is likely to sustain the above-trend growth rates seen in the past two quarters".
The services inflation data "is very good news for the MPC", says Sanjay Raja, chief UK economist at Deutsche Bank.
But, given some of the details in the PMI report, he expects some downward revisions in the final report due at the start of September and thinks UK GDP growth continues to track at "around a 0.4% quarter-on-quarter pace" for the third quarter and grow 1.2% for the whole of 2024.
The pound topped $1.3127 on the back, up over 0.2% against the US dollar this morning, its highest level since July last year.