The UK economy is on track to avoid recession this year, according to a closely watched survey that showed business activity bounced back in August as consumers "bucked Brexit" and carried on spending.
The pound leapt to a seven-week high against the dollar after a poll by Markit showed the country's dominant services sector enjoyed the biggest rebound in activity in at least 20 years.
It comes just a month after the decision to leave the EU triggered the biggest contraction in the services sector since the financial crisis, spurring the Bank of England to cut interest rates as part of a fresh stimulus package.
Markit said new orders touched a four-month high in August as companies took on more staff following a pause in July.
The survey also showed companies were more optimistic about future growth prospects, with a similar rebound in manufacturing putting the UK economy on course to eke out growth of 0.1pc in the third quarter,following growth of 0.6pc in the second quarter.
"Firms linked positive output expectations over the next 12 months to export opportunities, reduced uncertainty, stable markets, product launches, expansion plans and a recovery in the energy sector," Markit said.
The Markit/CIPS UK services purchasing managers' index rose to 52.9 in August, from 47.4 in July.
This is well above the 50 level that divides growth from contraction and economists' estimates for activity to stabilise at 50.
It also represents the biggest month-on-month rise since records began in 1996,more than reversing the record drop of 4.9 points in July.
Rising consumer confidence had an "immediate impact on demand" across the economy, said Chris Williamson, chief economist at Markit.
"Many companies were seeing business return to normal either simply as a result of customer confidence rising or a stoic determination to 'Buck Brexit' and carry on regardless," he said.
Mr Williamson said the revival was in stark contrast to the 0.4pc quarterly rate of GDP decline indicated by the July survey data.
While current figures suggest the economy is stagnating, he said further growth in September would point towards "a modest GDP expansion of 0.1pc in the third quarter".
This would see the UK avoid a technical recession - defined as two consecutive quarters of economic decline - at the turn of the year.
Policymakers at the Bank of England cut interest rates to a fresh low of 0.25pc in August as officials announced they would add £60bn to its stockpile of asset purchases alongside £10bn of corporate debt to try to prevent a deep downturn.
James Knightley, an economist at ING, said swift action by policymakers had helped to lift confidence across the economy.
"It is likely that the smooth transition of political leadership and the aggressive response from the Bank of England, plus the competitiveness boost from sterling's plunge, have all helped to ease the immediate fears for the economy.
"With other economic data suggesting that consumers are still spending, the UK looks set to post a reasonably good third quarter GDP reading," he said.
Mark Carney, the Bank's Governor, will face questions from MPs this week over its latest forecasts. He is likely to come under fire for warning that a vote to leave the EU could trigger a Brexit-induced recession.
Mr Carney suggested last month that the steps taken by policymakers had helped to avoid a big contraction in the economy.
He is also likely to stress to MPs that the Bank has already predicted a recovery in sentiment.
Ben Broadbent, the Bank's deputy governor for monetary policy, said last month that policymakers expected a rebound and "need[ed the PMIs] to recover" in order to meet its forecast for modest growth in the second half of this year.
The minutes of the Bank's latest interest rate meeting showed that if incoming data proved "broadly consistent with the August Inflation Report forecast" for growth of 0.1pc in the third quarter and slight growth in the final three months of the year, a "majority of members expect to support a further cut in Bank Rate" during the course of the year.
Martin Beck, senior economic adviser to the EY ITEM Club, highlighted that growth of even 0.2pc in the third quarter would still represent the weakest expansion since the end of 2012, when the economy contracted.
"While the gloomier predictions around the EU vote are unlikely to be realised, the economy is not out of the woods yet,” he said.
Elizabeth Martins, an economist at HSBC, said the UK economy was still on course for a protracted period of slower growth driven by a "gradual, investment-driven slowdown" as businesses put off spending decisions amid the uncertainty.
"While the PMIs provide some cheer about immediate activity levels, they do little to assuage our longer-term concerns about investment, particularly given the still low level of the future expectations index in the PMIs and other investor confidence indicators," she said.
http://www.telegraph.co.uk/business/2016/09/05/britains-growth-engine-rebounds-at-record-pace-after-brexit-vote/
