The disappointing reading meant Markit’s final composite PMI, covering both manufacturing and services, fell to 53.3 from 55.3 in July.
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A reading above 50 indicates expansion, while a reading below 50 represents contraction.
The PMI survey says, “Measured across the service economy, the level of incoming new work rose at the quickest pace for three-and-a-half years”.
However, the sector swung back to growth in August as companies reported that uncertainty had eased.
However, this is mostly driven by improved domestic demand since export sales continued to decline, albeit at the weakest pace since March.
The rise is the largest monthly increase in the history of the survey. Service providers raised prices sharply in August in response to the fastest growth in input costs in nearly three years.
Inflationary pressures also intensified in August, with overall input costs rising at a quickest pace since January 2015, driven in part by the sharpest rise in purchasing prices for almost five years.
A reading above 50 indicates economic expansion, while a reading below 50 points toward contraction. According to Markit, the September data will be crucial in determining whether the economy can secure marginal growth for the third quarter.
The surveys by Markit, which is a registered trade mark of IHS Markit Limited, focus more on small and medium-sized firms.
The country’s economy expanded 6.7 percent in the second quarter, still within the government’s target range of 6.5-7 percent for 2016. Output growth was broad-based by sector, with increases registered in the Financial Intermediation, Other Services, Post & Telecommunications, Renting & Business Activities and Transport & Storage categories.
Laith Khalaf, senior analyst at Hargreaves Lansdown, commented: “The service sector is the engine room of the United Kingdom economy, so a return to form represents a welcome vote of confidence in the country’s financial prospects”.
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“It’s also worth bearing in mind that dramatic bounce-backs are often a reflection of the depths of previous despair, rather than of optimism over the future”.
