UK Services Index Reaches 60.5, The Fastest Growth Rate In Six Years 
Similar to many developed economies the UK’s economy is dominated by the service sector which is responsible for up to 75% of the country’s economy and is therefore the biggest contributor to the nation’s output. Service industries, particularly banking, insurance, and business services, account by far for the largest proportion of GDP and employ around 80% of the UK working population.
The Markit services PMI is therefore closely watched by market analysts for signs of economic improvement and this morning the figures didn’t disappoint; the growth of new business has been recorded for eight successive months and the latest increase was the sharpest seen for over 16 years. This followed an optimistic print from Markit regarding the European composite PMI number; the index rose to 51.5, up from 50.5 in July, to signal the fastest rate of growth in just over two years. The final reading was slightly below the flash estimate of 51.7.
August’s survey of UK service providers signalled continued strong growth of activity and new business. Activity rose at the sharpest pace since December 2006, while growth in new work was the best seen since May 1997. Capacity continued to be tested, with backlogs of work rising at the sharpest pace for over 13 years. However, employment broadly stagnated, in part due to an inability of service providers to replace leavers. The headline seasonally adjusted Business Activity Index registered 60.5 in August. Improving on July’s 60.2, the latest reading was the highest in over six-and-a-half years.
Paul Smith, Senior Economist at survey compilers Markit:
[quote]“The UK service sector turned in another stellar performance in August, building on the growth momentum seen during July.[/quote]
[quote]“Moreover, the sector’s recovery, which has been evident since the start of the year, has legs. New business increased in August at the sharpest rate for over 16 years, and more than 50% of panellists are forecasting a rise in activity from present levels during the coming months.[/quote]
[quote]“With sister surveys for construction and manufacturing also signalling the continuation of substantial growth, the UK is well on course to register a strengthening of GDP growth over Q3 as a whole following the 0.7% q/q increase in Q2.[/quote]
[quote]“Perhaps the only disappointment for August was little change in employment. However, if activity and sales can maintain their current growth velocities, then higher payrolls and, just as important for many workers, increased wages, should hopefully follow suit.”[/quote]
HSBC – Markit China composite PMI increases
Chinese total output increased for the first time since May. The HSBC China Composite PMI data (which covers both manufacturing and services) signalled an expansion of output for the first time in three months during August. The HSBC Composite Output Index signalled a modest rate of growth, posting at 51.8 (up from 49.5 in July), that was the strongest level seen since March. Output increased simultaneously across both the manufacturing and service sectors in August. Notably, this was the first expansion of output at manufacturers in three months.
Market snapshot at 10:15 am UK time
In the overnight/early morning Asian session the main indices enjoyed mixed fortunes; the Nikkei closed up 0.54%, the Hang Seng closed down 0.31%, whilst the CSI closed down 0.-6%.
Despite the positive PMIs for the UK (and the majority of Europe) European indices have remained in the red with few exceptions. The STOXX is down 0.67%, the UK FTSE is down 0.48%, the CAC down 0.76% and the DAX down 0.42%. The Irish stock exchange index is down the most by 2.58%, whilst the Athens exchange is up 0.59% and the Istanbul index is up 0.34%.
Looking towards the New York open the DJIA equity index future is currently printing at 14805, down 0.15%, suggesting that the markets in the USA will open down marginally.
ICE WTI oil is down 0.39% at $108.12 per barrel, NYMEX natural is up 0.35% at $3.68 per therm. COMEX gold is up 0.45% at $1405.60 per ounce, whilst silver on COMEX is down 2.02% at $23.84 per ounce.
Forex focus
The dollar was little changed at 99.59 yen early in the London session after reaching 99.86 yesterday, the highest level witnessed since Aug 2nd. The U.S. currency has gained 1.4 percent in the previous two days. It was static at $1.3171 per euro after touching $1.3139 yesterday, the strongest level seen since July 22nd. The yen traded at 131.15 per euro.
Australia’s dollar rose versus all of its 16 major peers as an official govt. report showed second-quarter gross domestic product grew 0.6 percent from the previous three-month period, when it expanded a revised 0.5 percent. The currency climbed 0.7 percent to 91.22 U.S. cents after reaching 91.29, the highest level seen since Aug 20th.
Sterling strengthened 0.1 percent to 84.58 pence per euro after appreciating to 84.46 yesterday, the strongest level since May 21st. The pound rose 0.1 percent at $1.5578 early in the London session after gaining 0.4 percent during the previous two days.
Sterling has strengthened by 6.2 percent during the past six months, the best performer amongst the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Index. The euro has gained 4 percent, whilst the dollar has climbed 2.7 percent.
The U.S. Dollar Index, tracking the greenback versus 10 other major currencies, was little changed at 1,035.85 from yesterday, when it reached 1,038.61, the highest level witnessed since July 16th.
