Activity in the UK’s service sector grew at its fastest pace in 16 years, in October, continuing its strong performance in the third quarter and increasing hopes that the Bank of England, or BoE, could raise its economic growth forecast for the country.
UK’s services PMI, published by Markit and the Chartered Institute of Purchasing & Supply, or CIP, recorded a level of 62.5, significantly higher than a 60.3 registered in September, driven by new orders. The reading was markedly higher than analysts’ expectations of a drop in the reading to 59.8. A reading above the 50-point mark indicates expansion while a reading below 50 signals contraction.
“The UK economic recovery moved up a gear again in October, with the PMIs indicating record growth of output and employment,” Chris Williamson, chief economist at Markit, said in a statement. “Manufacturing, services and construction all continued to see very strong rates of expansion, pointing to an ongoing broad-based upturn.”
New business orders expanded at the sharpest rate recorded since 1996, when the survey began, aided by improved market sentiment and a strengthening economic climate. A buoyant housing market also boosted growth during the month.
Reflecting the increase in new business orders, backlogs of work increased for a seventh successive month while employment has increased for 10 straight months, and both the sub indexes grew at their fastest pace in 16 years.
“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,” David Noble, CEO of CIPS, said in the statement.
Both UK’s economy and its service sector have been improving since the beginning of 2013, frequently surprising economists. In the September quarter, the sector posted its best performance in 15 years, while the all-sector PMI, which measures business activity across the UK's private sector, rose to an all-time high of 61.5 in October, up from 60.2 in September.
The robust growth rate in the service sector, which due to its size is the major driving force behind economic growth, suggests that the nation’s economy is in line with projections for a 1.3 percent growth in the fourth quarter of the fiscal year, Williamson said.
He added that the buoyant survey data are likely to encourage the BoE to raise its forecasts for economic growth and advance its expectation for when the unemployment rate would fall below 7 percent, when it publishes its new projections in November. Currently, the BoE estimates that the unemployment rate will take three years to fall below 7 percent, a threshold at which the central bank has said it would consider raising interest rates.