UK Services Sector Records Strong Growth

UK Services Sector Records Strong Growth

The purchasing managers’ index for services, which represents approximately 80 per cent of the UK economy, rose to 55.2 in November from 54.5 in October. This was above City forecasters’ expectations and signified the fourth month in a row that the index has been above 50 (the threshold that separates expansion from contraction).

The services sector reported particularly strong growth in overseas demand due to the fall in value of the sterling; the weaker pound also meant that reported input price inflation remained high, similar to the reported figures of purchasing managers in the manufacturing and construction sectors. Chirs Williamson, chief business economist at IHS Markit, told the Financial Times, “The three PMI surveys collectively indicate that the economy will grow by 0.5 per cent in the fourth quarter”. This would exceed the forecast of 0.4 per cent growth made by the Office for Budget Responsibility at the end of November.

Service sector output expanded by 0.8 per cent in the third quarter, suggesting a positive short-term outlook for the services sector. However, analysts believe that growth is likely to slow next year. Ruth Gregory of Capital Economics said, “A moderation in growth next year still seems likely as rising inflation eats into households’ real income growth and uncertainty delays some business investment.”

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