Services sector activity provides 'sparkling start to Q4'

Gurjit Degun
5 November 2013

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Activity in the UK services sector expanded at the fastest pace for 16 years, as levels of incoming new business rose at the sharpest rate for 17 years.

 

The Markit/CIPS UK Services Purchasing Managers’ Index reached 62.5 in October, a rise from 60.3 in September. This is against a baseline of 50, with anything higher representing growth. This represented the sharpest rise in activity since May 1997.

 

Service sector activity has risen continuously throughout 2013 to date and generally at an accelerated rate. Incoming new work increased at the sharpest rate recorded in the survey history (since July 1996) leading to capacity pressures at UK service providers. Backlogs of work increased for the seventh successive month.

 

The higher workloads also encouraged companies to add to their payroll numbers in October, and employment has now risen for 10 months in a row. More than half of respondents said they expected a rise in activity in 12 months’ time. Some added improved performance of the UK property market is also likely to bolster activity.

 

Rising energy, fuel and utility bills drove up input cost inflation to the highest in eight months. Wages were also reported to be higher on average. Output charges rose last month for the fifth month running and at the strongest pace since May 2011.

 

Chief economist at Markit Chris Williamson said: “The UK economic recovery moved up a gear again in October, with the PMIs indicating record growth of output and employment. The all-sector PMI hit an all-time high of 61.5 in October, up from 60.2 in September.

 

“The buoyant survey data is likely to encourage the Bank of England to raise its forecasts for economic growth when it publishes its new projections in November. The Bank is also likely to bring forward its expectation of when unemployment will fall below 7 per cent, the threshold needed to be reached before the Bank will consider raising interest rates.” 

CIPS group CEO David Noble added: “In conjunction with manufacturing and construction, the services sector hit a record high in October in new business growth and the best rise in activity since May 1997, rounding off a sparkling start to Q4 for the UK economy. Confidence is high that this run of growth can be maintained throughout the final quarter, underpinned by the stable economic climate and improvements in the housing market. 

“Input costs, especially utility and energy prices, continued to increase in October, putting pressure on margins. The steady rate of growth has given service providers enough confidence to partly reflect these higher costs in their own prices. How this price front evolves in the coming months could become an increasingly watched area and play an important role in shaping future growth prospects.”

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