Bets on rate cuts rise on signs of slowing services inflation | Business news

Financial market expectations for another interest rate cut next month have risen after a closely watched survey suggested further progress in the fight against stubborn services sector inflation.

According to preliminary data from the S&P Global Composite Purchasing Managers' Index (PMI), input cost inflation fell to its lowest level in just over three and a half years in August.

“This is mainly due to a further decline in cost pressures in the services sector, reflecting reports of lower supplier markups and increased competition in the market,” the report said.

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It is an important early indicator for Bank of England Politicians who have pointed out that price increases in the services sector represent a major obstacle to interest rate cuts.

The other major concern was the pace of wage growth.

However, the PMI report showed only minor changes in the rate of salary increases.

The input cost data raised expectations of a second consecutive Interest rate cut from the bank by two percentage points.

According to LSEG data, almost 30% of participants at the September meeting expected a cut to 4.75%.

The report’s authors said further findings showed economically The momentum of 2024 is expected to continue, albeit to a lesser extent than in the first two quarters.

The so-called flash estimate, where a value above 50 indicates growth, rose from 52.8 in the previous month to 53.4 in August.

Both the manufacturing and services sectors reported production growth and new jobs in a more optimistic business environment than at the beginning of the year.

Survey respondents said more optimistic assessments of the recent domestic economic outlook had spurred efforts to increase business capacity.

S&P Global said the figures represented economic growth of 0.3 percent in the quarter.

Chris Williamson, chief economist at S&P Global Market Intelligence, said: “August has seen a welcome combination of stronger economic growth, improved job creation and lower inflationaccording to preliminary PMI survey data.”

“The latest survey data therefore help to lower the hurdle for further rate cuts, although the still high
of services sector inflation suggests that policymakers will proceed cautiously,” he added.

A Reuters poll of economists published on Wednesday suggests the Bank of England will cut interest rates only once
more this year, in November.

One of the stumbling blocks is inflation in the services sector.

While the most important indicator of inflation Last month's price increase was largely due to the way energy prices are calculated, while inflation in the services sector put downward pressure.

The annual rate slowed to 5.2% from 5.7%, meaning prices are still rising – quite a lot – but not as much.

The PMI data provide a clear indication that further progress is likely to be reflected in future official figures.