The UK service sector delivered its sharpest expansion in over a year in August, with service PMI activity at 54.2, while composite PMI also rose to 53.5. This rebound reflects three crucial dynamics. Pent-up demand, cheaper borrowing costs, and a modest revival in overseas sales. Together, they lifted new order growth to its strongest since late 2024 and spurred business confidence to a 10-month high.

But the recovery is uneven. The persistent decline in employment, now stretching to 11 months, highlights that firms are expanding output without expanding labour. Rising payroll costs, automation strategies, and hiring freezes suggest businesses are prioritising efficiency over workforce growth. This raises questions about the sustainability of demand-led expansion if wage growth is restrained and consumer confidence remains patchy.

Inflationary pressures add another layer. Input costs accelerated after a brief reprieve, with wage bills and supply chain pass-throughs re-intensifying pressures. Firms have responded by raising output prices at the fastest pace since April, which risks undermining demand if households perceive a new squeeze on spending power.

In short, the UK's service rebound signals improving momentum but masks structural strains. Growth is driven by demand recovery and pricing power, while its labour market fragility and rising costs could limit durability, leaving the RPI at 23 and the RPI-P at 19. Meaning that economic activities continue to stay well ahead of the expectations of the UK economy.

The Services Purchasing Managers' Index (PMI) provides an estimate of service sector business activity for the preceding month by using information obtained from a representative sector survey incorporating transport and communication, financial intermediation, business services, personal services, computing and IT and hotels and restaurants. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are compiled by the Chartered Institute of Purchasing and Supply (CIPS) and S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM non-manufacturing index in the U.S. and the S&P Global PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The S&P Global PMI services data give a detailed look at the services sector, how busy it is and where things are headed. The indexes are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.