The UK’s services sector continued its recovery last month as activity grew at the fastest pace for four months, according to figures.
The S&P Global UK services PMI survey showed a reading of 52.5 in August, improving from 52.1 in July.
It was the highest reading since April.
Any reading above 50.0 means the sector is growing while any reading below signals it is contracting.
It was slightly weaker than expected, with economists having predicted a reading of 52.8 for the month.
Tim Moore, economics director at S&P Global Market Intelligence, said: “August data highlighted improving operating conditions across the UK service economy.
“Service providers are increasingly optimistic about the year ahead business outlook, with confidence levels now close to those seen just prior to the Middle East conflict.
“However, business activity growth projections were still subdued in comparison to long-run trends amid lingering worries about inflationary pressures and geopolitical tensions.”
Firms linked stronger levels of business activity to a “modest improvement” in broader economic conditions and reduced risk aversion among many clients.
Both business and consumer demand helped drive the recovery, as new order volumes grew again.
However, export sales dropped for a sixth consecutive month, amid subdued demand from Europe and wider geopolitical uncertainty.
The latest survey also pointed towards a potential stabilisation in the labour market, with employment numbers decreasing at the slowest pace since October last year.
The slowdown in job losses was linked to improved order books and greater optimism from companies about the business outlook.
Matt Swannell, chief economic adviser to the Item Club, said: “Respondents also reported strong cost increases through August and cited inflationary pressures as a key constraint on their optimism looking ahead.
“How the conflict in the Middle East plays out remains central to the inflation outlook, but we do not expect the recent uptick in inflation to change the MPC’s wait-and-see approach given that second-round inflation effects are yet to emerge.”