U.K. service sector growth accelerates in October, beats market expectations

Growth in the United Kingdom’s service sector accelerated during the month of October, beating market expectations; however, it remained well above the 50-point no-change threshold for the third consecutive month in a row, indicating a continued recovery in growth following a contraction in July linked to the EU referendum.

U.K.’s Markit/CIPS UK Services Purchasing Managers Index (PMI) rose to 54.5 from 52.6 in September, marking its highest level since January and topping all forecasts in a Reuters poll of economists that pointed to a slight fall to 52.4. Moreover, the country’s Services Business Activity Index rose to 54.5, from 52.6, signalling the fastest expansion since January.

The survey also showed that a weak pound drove a marked intensification of cost pressures at service providers in October. Input price inflation surged to the highest since March 2011, with a survey-record month-on-month acceleration. Business expectations continued to recover from July’s near seven-and-a-half year low in October.

Further, service providers in the UK continued to add to their workforces in October. Employment increased for the third month running, albeit with the rate of job creation remaining well below the marked rates achieved in 2014 and 2015.

Meanwhile, concerns over the EU referendum result showed some signs of dissipating as respondents commented on a refocus on opportunities and ramped up marketing and sales promotions.

"Concerns over the EU referendum result showed some signs of dissipating as respondents commented on a refocus on opportunities and ramped up marketing and sales promotions," said Chris Williamson, Chief Business Economist, IHS Markit.