UK business downturn eases after inflation data, BoE pause – PMI

British services companies suffered a less severe downturn in September than first feared, reflecting a surprise fall in inflation and the Bank of England’s decision to leave interest rates on hold, a business survey showed on Wednesday.

The final reading of S&P Global UK Services Purchasing Managers’ Index (PMI) fell in September to 49.3 from 49.5 in August, falling further below the 50 threshold for growth.

While marking an eight-month low, it was much better than a preliminary “flash” reading of 47.2 that shocked investors and may have swayed Bank of England officials, a slim majority of whom voted to leave interest rates on hold last month.

The final PMI included responses from companies surveyed from Sept. 20 to Sept. 27 – days after data showed British inflation fell unexpectedly in August, as well as the BoE’s surprise rate decision on Sept. 21.

Tim Moore, economics director at data company S&P Global Market Intelligence, said the services sector remained on a negative trajectory – but noted that some companies were becoming more optimistic about cooling price pressures.

“Positive sentiment was attributed to hopes of a sustained easing of inflationary pressures and a turnaround in customer demand, as well as new product launches and business investment plans,” Moore said.

“Worries about elevated borrowing costs and stretched household budgets were nonetheless cited by survey respondents.”

The services PMI’s gauge of employment fell to its lowest level since January 2021. Outside of the COVID-19 pandemic, it was the lowest reading since 2010.

Moore said there was evidence that some companies decided not to replace departing staff because of strong wage pressures.

The PMI’s gauges of cost pressures and selling prices eased to their lowest level since April 2021.

The composite PMI – which combines Monday’s manufacturing survey with the services PMI – inched down to 48.5 in September from 48.6 in August, revised up from a flash reading of 46.8.