Britain’s services sector, which accounts for more than 75% of the country’s GDP, accelerated in October and has “moved up a gear,” according to the latest PMI data from IHS Markit, released on Thursday morning.
The services sector — which includes everything from banking to waitressing — drew a reading of 54.5 in the month, almost two full points ahead of September’s 52.6 reading, and even further above the expected 52.4 forecast by economists.
The numbers from IHS Markit provided the best reading for the sector since January.
“The latest PMI survey data from IHS Markit and CIPS signalled that the dominant UK service sector moved up a gear at the start of the final quarter of 2016,” said IHS Markit in a statement.
“The rate of growth of total business activity accelerated to the fastest since January, as did new business expansion. The sector continued to generate more jobs, albeit at a weaker rate than the average seen over the past three years.”
The purchasing managers index (PMI) figures from IHS Markit are given as a number between 0 and 100.
Anything above 50 signals growth, while anything below means a contraction in activity — so the higher the number is, the better things look for the UK.
Here is IHS Markit’s chart of the PMIs longer-term trend (note the massive pick up since July):
The PMIs seem to suggest that British businesses are now shrugging off the initial shock of the vote, getting back to normal. As Chris Williamson, Chief Business Economist at IHS Markit notes (emphasis ours):
“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.”
While on the surface the numbers look pretty terrific, everything is not totally rosy for the services sector, and as Williamson notes: “An encouraging picture of the economy gaining further growth momentum in October is marred by news that inflationary pressures are rising rapidly.”
“The ugly flip-side of the weaker pound is clearly evident, however, with the rate of increase of service providers’ costs showing the largest monthly acceleration seen in 20 years of survey data collection. Costs are consequently rising at the fastest rate for over five years. If sustained, the increase in prices threatens to curb both corporate hiring and consumer spending, as firms seek to reduce staff costs and households see their pay eroded by rising inflation.”
Thursday’s services numbers come the day after the construction sector also surpassed expectations. IHS Markit and CIPS’ latest PMI release for the construction sector came in at 52.6 for the month.
That was a little higher than the 52.3 reading from September, and well above the 51.8 that was expected by economists polled before the release.
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