Martin Flanagan: Services sector rides to the rescue

For Britain, manufacturing is important; construction, too, but to a somewhat lesser extent; and a better employment picture than much of Europe also helps sentiment.

If the services sector thrives we all bask in the sunshine, says Martin Flanagan. Picture: Toby Williams
If the services sector thrives we all bask in the sunshine, says Martin Flanagan. Picture: Toby Williams

But to really gauge how we are doing economically, for more than a generation now it has been a question of looking at the linchpin services sector.

Thankfully, the latest data shows the key industry is in decent fettle despite the Brexit vote. Retail and financial services each chip in about 10 per cent of the sector, but it is the likes of hospitality, restaurants, hotels, pubs, professional services, IT and transport that take its general share of the UK economy up to about 75 per cent.

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In post-manufacturing Britain, if services thrives we all bask in the sunshine, if it stumbles we feel the chill. Overall, the latest figures for August from services are the clearest sign yet of how after initial post-Brexit nerves in July the economy has proved surprisingly resilient.

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Services sector bounces back after July slide

We had already seen positive summer retail sales and employment data, and last week we learnt that although construction was in contraction again in August the decline slowed appreciably from July.

Yesterday, services provided the cherry on top, with the Markit/Cips services purchasing managers’ index showing a surprisingly strong reading of 52.9 in August, well up from 47.4 in July, and comfortably above City economists’ forecasts of 50. Any figure above 50 indicates growth.

Does this mean all will go well from here? No, unfortunately. Just as the July panic, when sterling fell to 30-year lows against the US dollar in the wake of the UK’s EU referendum result, now appears to have been overdone, the subsequent bounce could also be transient.

There is something of the phoney war and phoney armistice about the summer’s economic figures. Our mid-term economic fortunes will not really be foreshadowed until Article 50 to leave the EU is triggered and we get a feel of how trade negotiations between the UK and its former single trading bloc partners are panning out.

But even so, while excessive optimism is clearly not appropriate, the services figures show that excessive pessimism on the current economic showing is also misplaced. The national psyche has been bruised by the Leave/Remain split. Not for the first time, services has provided some cheer.