You are here

UK services rebound, economy to pick up in Q4: PMI

[LONDON] Growth across British services companies rebounded more strongly than expected last month, a survey showed, suggesting economic growth picked up speed at the start of the final quarter, although business confidence slipped to a 2-1/2-year low.

The Markit/CIPS UK services purchasing managers' index, published on Wednesday, rose to 54.9 from September's 28-month low of 53.3, above the 54.5 forecast by a Reuters poll of economists.

Bank of England policymakers meeting this week to review the economic outlook will be encouraged to see jobs growth hitting a five-month high among services firms, which account for more than three-quarters of activity in Britain's private sector.

Data company Markit said its survey suggested overall economic growth had picked up to a quarterly 0.6 per cent at the start of the fourth quarter, having slowed to 0.5 per cent in the July-September period.

Britain was the world's fastest-growing big, developed economy last year, but some other business surveys have suggested the pace of expansion has moderated amid an uncertain global outlook.

Wednesday's PMI followed strong readings from comparable surveys of the manufacturing and construction sectors. "Such an improvement, together with the revival in hiring signalled by the three surveys ... may coax more policymakers into (voting to raise) interest rates before the end of the year," Markit's chief economist Chris Williamson said.

Only one of the BoE's nine rate-setters has backed raising interest rates from their record low 0.5 per cent in recent months. Economists polled by Reuters do not expect a majority to follow suit until the second quarter of next year. "Dovish policymakers will note the ongoing lack of inflationary pressures in October, suggesting that there is no need to rush into raising rates," said Mr Williamson.

Cost pressures faced by services companies matched August's seven-month low and remained a long way off the survey's long-run trend.

Raising a question about the durability of the recovery, optimism about business prospects in a year's time fell for a fifth month straight to plumb the lowest level since April 2013, the PMI showed, while growth in new orders remained stuck at September's 2-1/2-year low.

The service sector, which covers major banks to bed-and-breakfast hotels, was the sole industry driving economic growth in the third quarter, according to preliminary official data released last month.

Markit's PMI UK composite index, which combines services, manufacturing and construction, rose to a three-month high of 55.7 in October from September's 53.9.

Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.