Services sector expands by highest rate in five years as economy fights back

There was further evidence the UK economy was fighting back today after data showed the services sector had expanded at its fastest rate in five years.

The services sector is vital because it is by far the largest part of the economy and includes restaurants, bars and retail.

Data from research firm IHS showed that the sector rose to a five year high of 58.8 in August, up from 56.5 in July. Anything above 50 indicates growth.

The data revealed pent up demand across the housing market and rising spending as a result of the UK government’s Eat Out to Help Out scheme.

Chris Williamson, chief business economist at IHS Markit, said: “A further surge in service sector business activity in August adds to signs that the economy is enjoying a mini boom as business re-opens after the lockdowns.”

But Williamson was worried that the recovery could soon disappear once stimulus measures are removed.

He added: “The current expansion is built on something of a false reality, with the economy temporarily supported by measures including the furlough and Eat Out to Help Out schemes.

“The burning question is how the economy will cope as these supports are withdrawn. Worryingly, many companies are already preparing for tougher times ahead, notably via further fierce job cutting, the rate of which re-accelerated in the service sector in August to a pace exceeding that seen at the height of the global financial crisis.

“Policymakers face a huge challenge in sustaining this recovery and avoiding a ‘bounce and fade’ scenario, especially if virus numbers escalate further, in which case we may be looking at a ‘bounce and slump’.”