Weak pound drives services growth

Will Green is news editor of Supply Management
3 November 2016

The UK services sector grew during October at the fastest pace since January, with demand linked to the weaker pound.

Growth was driven by an expansion in new business, linked to increased international demand, improving market confidence and promotional campaigns.

The Markit/CIPS UK Services Purchasing Managers’ Index climbed to 54.5 in October, up on 52.6 in September and against the no-change position of 50.

However, the pound’s depreciation also drove a marked intensification of cost pressures at service providers during October, with input inflation the highest since March 2011. Higher costs were linked to fuel, salaries and food prices. As a result, firms raised their charges at the fastest pace since April 2011.

David Noble, group CEO, CIPS, said: “The exchange rate on the pound continued to be a blessing and a curse as opportunities for more export-related activity such as tourism improved.

“On the other hand, input price inflation accelerated to a level not seen since March 2011 as healthy margins were challenged. Higher food and fuel prices were highlighted.”

Chris Williamson, chief business economist at IHS Markit, said: “Business activity is growing at a rate consistent with solid economic growth of 0.4-0.5% in the fourth quarter (the surveys suggest the initial 0.5% GDP growth estimate for the third quarter could be revised slightly lower).

“What’s especially reassuring is that growth is also becoming more balanced. Manufacturing is leading the expansion as exporters benefit from the weaker pound, but services growth is also reviving and construction is being boosted by renewed house building.”

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