Britain’s services economy expanded at its fastest pace since April during August, but renewed increases in business costs and selling prices have complicated the outlook for interest rates.
The final S&P Global UK Services Purchasing Managers’ Index rose to 52.5 from 52.1 in July, remaining above the 50-point threshold that separates expansion from contraction for a second consecutive month.
S&P Global said operating conditions improved as business and consumer spending recovered following declines during the second quarter. The August reading was slightly weaker than the preliminary estimate of 52.8, but still represented the strongest services performance since April.
Tim Moore, economics director at S&P Global Market Intelligence, said: “August data highlighted improving operating conditions across the UK service economy.”
New business continued to grow, although the survey’s new-work index edged down to 50.7 from 50.8 in July. Employment fell again, but at the slowest rate since October 2025, with companies reporting stronger sales pipelines and some improvement in broader market conditions.
Confidence also strengthened. Expectations among services companies reached their highest level since February despite continued uncertainty around inflation and the economic consequences of conflict in the Middle East.
The more difficult signal came from prices. S&P Global found that a greater proportion of companies increased the prices charged to customers during August, while input-cost inflation also strengthened following an easing in both measures during July.
Improving demand alongside stronger pricing pressure presents a more complicated picture for the Bank of England than weak growth alone. Slower economic activity would normally reduce companies’ ability to raise prices, while recovering demand can give businesses greater scope to pass higher energy, wage, transport, and supplier costs to customers.
The Bank is already assessing how higher energy prices associated with conflict in the Middle East will affect domestic inflation. Chief economist Huw Pill has separately argued that Bank Rate should rise from 3.75% to 4% to reduce the risk that temporary price shocks become embedded through subsequent wage and pricing behaviour.
August’s services data do not establish how persistent those pressures will become, but they add to the evidence confronting the Monetary Policy Committee. Services make up the dominant share of the UK economy, and domestic service costs are closely watched because they can respond more slowly than internationally traded goods prices.
The broader S&P Global composite PMI, combining manufacturing and services, increased to 52.5 from 52.2 and also reached its strongest level since April. The improvement suggests private-sector activity entered the latter part of the third quarter with greater momentum than during the spring.
Conditions nevertheless remain uneven. The new-work reading only narrowly exceeded the neutral level, employment was still declining, and companies continue to operate against a backdrop of geopolitical uncertainty and higher financing costs. The improvement in headline activity has yet to translate into a broad-based investment recovery.
The next phase will depend partly on whether stronger demand can be sustained without producing a more persistent rise in prices. A services recovery supported by consumer and business spending would improve revenue prospects, but higher wage, energy, and financing costs could constrain margins where companies cannot continue passing increases through.
The Bank faces the same tension. Improving activity reduces the immediate risk of stagnation, while stronger price pressure increases the case for keeping monetary conditions tight. August’s PMI has strengthened both sides of that policy calculation.
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