The UK service sector returned to growth in August, according the Markit/CIPS UK Services Business Activity Index. Following abrupt contractions in output and new business in July, linked to the EU referendum, the latest data signalled a return to growth as companies reported that uncertainty had abated somewhat.

The business activity index rebounded to 52.9 in August, from 47.4 in July. The month-on-month gain was the largest recorded over the 20-year survey history, following a record drop of 4.9 points in July. Renewed expansion of total activity was supported by a resumption in growth of new business – new work rose at the fastest pace in four months and companies linked greater demand to new clients, higher export business linked to the weak pound, higher domestic tourism and returning confidence following Brexit vote.

The forward-looking business expectations index recovered most of the ground lost in July, albeit remaining weak by historical standards. Moreover, the latest data signalled rising inflationary pressure linked to the weak pound.

Commenting on the findings, David Noble, group chief executive of the Chartered Institute of Procurement & Supply says: “Business optimism ricocheted back to pre-Brexit levels, reassured by market stability and clients bringing dormant projects back to life. Whether this steadiness continues will largely depend on the sector’s reaction to the UK Government’s approach to the Brexit negotiations as the sector keeps one eye on business as usual and one eye on possible obstacles ahead.”

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