Services sector smashes expectations with fastest expansion for six months

A snapshot of activity in industries ranging from hotels and restaurants to transport, communication and IT, which generate over three-quarters of UK output, cited stronger domestic demand and successful new product launches for a marked improvement in output.

The IHS Markit/CIPS purchasing managers’ index jumped from 53.6 in September to 55.6, well ahead of economists’ consensus forecast of 53.3.

A reading above 50 means growth. It adds to improved performances in manufacturing and construction earlier this week and suggests the economy is growing at about 0.5 per cent this quarter compared with 0.4 per cent over the previous three months.

The pound strengthened against the US dollar and the euro.

EY ITEM Club’s Dr Howard Archer said: “The Bank of England will likely see October’s set of improved purchasing managers’ surveys as supportive to the decision to raise interest rates, reinforced by prices charged rising at a six-month high in the services sector.”

The October data pointed to slower employment growth across services despite a rebound in activity and incoming new work, with companies more cautious about hiring due to concerns over longer-term demand.

Input prices rose sharply at service sector firms, whose optimism has fallen from the first half of the year.

IHS Markit’s chief business economist, Chris Williamson, said: “While an upturn in activity adds some justification to the Bank of England’s interest rates hike, a deeper dive into the numbers highlights the fragility of the economy and points to downside risks for the outlook.”

Duncan Brock of the Chartered Institute of Procurement & Supply added: “Political uncertainty is damaging the confidence to invest and weighing down on business optimism among clients.

“It remains to be seen whether consumers will be spooked by the rate rise and will curb their spending.”