LONDON (REUTERS) - Britain's services industry bounced back strongly last month from a slump triggered by June's vote to leave the European Union, a closely watched survey showed on Monday, reducing the likelihood of a recession.
The survey echoed the upbeat tone of numbers released last week on the manufacturing and construction sectors in August.
But overall economic growth still looks set to slow sharply, keeping alive the prospect of another Bank of England rate cut before the end of the year.
The Markit/CIPS Purchasing Managers' Index (PMI) for the services sector jumped to 52.9 in August from July's seven-year low of 47.4, the biggest one-month gain in the survey's 20-year history and one which beat all forecasts in a Reuters poll.
Similar gains were seen last week in PMIs for the much smaller manufacturing and construction sectors, boosting the all-sector PMI to a five-month high of 53.2.
However, given the weakness in July, economic growth in the third quarter overall was likely to be just 0.1 per cent, survey compilers IHS Markit said.
"It remains too early to say whether August's upturn is a dead cat bounce or the start of a sustained post-shock recovery," IHS Markit economist Chris Williamson said. "But there's plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate."
Overall the figures suggested "an imminent recession will be avoided", Mr Williamson added.
A mild recession was the central forecast in a Reuters poll of economists conducted last month after the BoE cut rates for the first time since 2009 and restarted quantitative easing to help protect the economy from a Brexit shock. The BoE did not forecast a recession and instead predicted growth of 0.1 per cent for the third quarter.
Monday's data thus keeps alive the prospect of a second rate cut by the BoE this year - something most policymakers thought was likely to be needed if the economy slowed as they expected.
Britain's new finance minister, Mr Philip Hammond, will pay close attention to the figures as he considers how decisively he will break with his predecessor's austerity plans later this year.
Part of August's gains were linked to sterling's slump against the US dollar and the euro, with more demand for exports and a higher number of Britons holidaying at home.
But the weaker pound also pushed up prices at the fastest rate in over two years while business confidence remained near its lowest in four years, despite some improvement from July. "Many companies remain worried about the outlook and how the economy will fare in the event of Brexit, suggesting that political and economic uncertainty is likely to prevail in coming months, subduing growth," Mr Williamson said.
New Prime Minister Theresa May has not decided when to start formal exit talks with the EU, which are likely to lead to years of uncertainty about how much access British firms will retain to European markets.
A survey from the EEF manufacturers body showed the weakest outlook for investment since late 2009.
Markit's services PMI only covers about half of the sector that makes up 80 per cent of Britain's economy, as it does not include retailers or public services.