Key facts
- UK private sector growth accelerated in August, reaching a four-month high.
- Job losses have persisted for 23 consecutive months, a record since 1996.
- The unemployment rate has increased to 4.9% since mid-2024.
- High energy prices and supply disruptions linked to the Middle East conflict contribute to cost pressures.
- Labour's policy changes, including minimum wage hikes, have increased costs for businesses.
The UK economy's private sector experienced its fastest growth in four months in August, according to S&P Global data. This expansion, primarily driven by the services sector, has occurred despite persistent concerns about business costs and rising inflation. However, this economic resilience has not translated into job creation, as the country has now seen 23 consecutive months of job losses, a record streak since surveys began in 1996. The unemployment rate has climbed from 4.4% to 4.9% since Labour took office in mid-2024.
Chris Williamson, chief business economist at S&P Global, noted that while the rate of job losses is moderating and business sentiment is improving, cost pressures remain high. He attributed these pressures to energy prices and supply disruptions stemming from the Middle East conflict, alongside elevated staffing costs. Williamson also pointed to Labour's policy decisions in its 2024 budget, such as increases to the minimum wage and national insurance for employers, as factors negatively impacting hiring and increasing business costs.
Rob Wood, chief UK economist at Pantheon Macroeconomics, suggested that the improved business sentiment could lead to the UK economy exceeding the Bank of England's growth expectations for the third quarter. He estimated that the average PMI for July and August indicates quarter-on-quarter GDP growth of 0.2%, which is above the Monetary Policy Committee's forecast of 0.1%. Wood cautioned, however, that uncertainty surrounding government policy and higher energy prices could still dampen demand.