Services sector boost for UK economy

Britain's dominant services sector grew at its fastest monthly pace for more than 16 years in October, spurring hopes that the UK economic recovery is accelerating through the final quarter of the year.

Shoppers on Northumberland Street in Newcastle
Shoppers on Northumberland Street in Newcastle

Britain's dominant services sector grew at its fastest monthly pace for more than 16 years in October, spurring hopes that the UK economic recovery is accelerating through the final quarter of the year.

The reading of 62.5 from the closely-watched Markit/CIPS purchasing managers’ index (PMI) - far ahead of the 50 level that separates growth from contraction - was the best since May 1997.

It suggests that not since Tony Blair entered Downing Street has the sector, which represents three-quarters of economic output, been expanding so quickly.

Job growth was also the best since May 1997, while new work increased at the sharpest rate since the survey began in July 1996. Firms said the housing market - boosted by initiatives such as Help to Buy - remained a source of growth. The figures add to other PMI data from October showing continued improvements in construction and manufacturing, though the pace of the latter has slowed. Chris Williamson, chief economist at Markit, said they indicated private sector job creation running at more than 100,000 per quarter, and an ongoing broad-based upturn in the economy.

David Noble, chief executive of the Chartered Institute of Purchasing and Supply, said it was a “sparkling start to Q4 for the UK economy”. Economists said it appeared to indicate gross domestic product growth (GDP) for the fourth quarter as high as 1.5%, up from 0.8% in the third quarter - though Alan Clarke of Scotiabank warned the survey could be “a bit frothy”.

Howard Archer of IHS Global Insight said moderation in consumer spending - amid latest figures showing lacklustre retail sales - was also likely to put the brakes on GDP performance. The services data showed that the sector was continuing to benefit from increasing optimism amid the economic upturn. Higher workloads have encouraged more hiring. Energy, fuel and utility bills, plus wages, pushed up costs and put pressure on margins - but firms were becoming confident enough in the recovery to pass these on in the shape of modest price rises of their own.

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