UK's Service sector sees improvement

The UK service sector saw growth in October; the first time in four months that the growth rate has improved. The closely followed ‘Markit/CIPS Service Sector Purchasing Managers Index’ (PMI) improved from the 53.3 level, seen in the previous month, to 54.9 – any figure above the 50 mark represents growth in the sector.



Whilst this data was welcomed, Markit did state that the pace of improvement was still “relatively subdued”.

The PMI went on to say that within the sector there was strong jobs growth, as it hit a five-month high.

This good news follows similar bullish results, released recently by PMI, from both the ‘manufacturing’ and ‘construction’ sectors.

Chris Williamson, the Chief Economist of Markit, was reported as saying: “Such an improvement, together with the revival in hiring signalled by the three surveys... may coax more policymakers into (voting to raise) interest rates before the end of the year.”

However, he reportedly went on to add: “Dovish policymakers will note the ongoing lack of inflationary pressures in October, suggesting that there is no need to rush into raising rates.”

The Government itself will be very pleased to see more business sectors seeing improved performance, as the Chancellor of the Exchequer, George Osborne, has stated that he is committed to seeing a far more balanced economy evolving across the country, with less reliance on any one sector to drive GDP growth.

Editor’s note: The future direction and timing of interest rates remains a contentious subject, given the Governor of the Bank of England, Mark Carney’s recent comments on the subject. See ‘The Bank of England’s inflation report’ article.

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SERVICE SECTOR SOARS

The latest Markit/CIPS services purchasing managers’ index (PMI) reports strong growth in the UK services sector, which currently represents 70% of the UK economy and which has driven the recent improvement in sentiment.

 Their July index was recorded at 59.1, up from the 57.7 recorded in June. Given that any score above 50 represents expansion, this is very good news for the economy as a whole.

Further encouraging news also came from the construction sector where, driven by an increase in home building to its highest level for 11 years, their index was recorded at 62.4.

At these levels, it is encouraging for the July-September quarter, where its is expected that the country’s Gross Domestic Product (GDP) will match the 0.8% growth achieved in both the first and the second quarter of 2014, should this positive tr end continue.

Commenting on these findings, Chris Williamson, Markit’s Chief Economist, said: “The July PMI showed the sector expanding at the fastest pace since November, as demand for services continued to increase at a rate rarely seen in the survey’s 18-year history.”