British companies grew at the fastest pace in four months in August, with positive sentiment helping to lift the pound to a 13-month high against the dollar.

Stronger economic growth, improved job creation, falling inflation and lower interest rates boosted output in the key services and manufacturing sectors, the latest S&P flash survey of purchasing managers showed.

The S&P Global purchasing managers’ index (PMI) of activity in the private sector rose for the tenth month in a row to 53.4 in August from 52.8 in July, the best output figure since April. Any figure above 50 indicates overall growth. The pound rose to $1.3118 against the dollar, the highest since July last year.

The survey was conducted a month after the general election, with companies reporting that “more upbeat assessments of the domestic economic outlook had spurred efforts to boost business capacity”, S&P said.

The manufacturing sector, which has been one of the weakest-performing parts of the economy over the past two years, had its best monthly output since early 2022, with the PMI rising to 52.5 this month. Services companies, which account for more than three-quarters of the economy, also reported rising output, up to 53.3 from 52.5 in July.

Private sector surveys are an important measure of potential economic growth. The UK had the fastest growing economy in the G7 in the first half of the year and rising PMIs suggest that it is holding up in the third quarter.

Chris Williamson, chief business economist at S&P Global, said the figures pointed to third-quarter GDP growth of 0.3 per cent, after a 0.6 per cent expansion in the second quarter.

“August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation, according to provisional PMI survey data,” Williamson said. “Although GDP growth looks set to weaken in the third quarter compared to the impressive gains seen in the first half of the year, the PMI is indicative of the economy expanding at a reasonably solid quarterly rate of around 0.3 per cent.”

The Bank of England cut interest rates for the first time in four years this month, and falling inflation and gradually declining borrowing costs have lifted business sentiment.

A measure of inflation in businesses’ inputs fell to a three-year low but average prices charged rose in August. Companies also increased their hiring this month, lifting overall employment by the fastest rate since June last year, according to the survey.

Equivalent PMI figures from the eurozone rose from 50.2 to 51.2, driven higher by the Olympics hosted in Paris.