Investing.com – Activity in the UK service sector improved more than expected in July, putting an end to two months of declines and bolstering optimism over the British economy as the sector makes up approximately 80% of gross domestic product, industry data showed on Thursday.
In a report, market research group IHS Markit said the seasonally adjusted IHS Markit/CIPS services purchasing managers’ index (PMI) increased to 53.8 last month from a reading of 53.4 in June.
Analysts had expected the index to edge forward to just 53.6.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
The research group indicated that the reading was just a slight uptick from June’s four-month low and warned that optimism regarding the business outlook remained subdued.
On the upside, the report recognized that employment numbers rose at the fastest pace since January 2016.
“The service sector PMI indicates that businesses remain in expansion-mode despite heightened uncertainty about the outlook, but also highlights how the risks to future growth remain firmly biased to the downside.,” IHS Markit chief economist Chris Williamson said in the report.
Williamson noted that the data from the three surveys combined (services, manufacturing and construction) suggests growth of around 0.3%, putting the country on track for what he considered would be “another steady but sluggish expansion in the third quarter”.
This expert warned that the subdued levels of business optimism suggested that growth will at least remain modest and could even weaken in the coming months.
“Firms’ prospects for the coming year have slipped to a level which has previously been indicative of the economy stalling or even contracting, having taken a lurch downward since the general election, largely reflecting heightened uncertainty about the economic outlook and Brexit process,” he concluded.
Following the report, the pound moved higher. GBP/USD was trading at 1.3258 from around 1.3229 ahead of the release of the data, EUR/GBP was at 0.8926 from 0.8946 earlier, while GBP/JPY traded at 146.76 compared to 146.40 previously.
Meanwhile, European stock markets traded mostly lower, with London’s FTSE 100 dropping 0.33%. The Euro Stoxx 50 lost 0.54%, France's CAC 40 traded down 0.31%, while Germany's DAX fell 0.53%.