UK services sector activity improves in October

| November 3, 2010 | 0 Comments

Growth in the UK’s closely-watched service sector accelerated in October but the outlook is cautious as companies worry about the impact of spending cuts.

The latest index from the Chartered Institute of Purchasing and Supply (CIPS)/Markit PMI climbed to 53.2 in October, from 52.8 in September, confounding expectations of a 52.5 reading.

However, the index remains above the crucial 50 level, which indicates expansion.

The rise was attributed to an increase in new business, however the business expectations index dropped to 65.2, while the employment index fell below the 50 level, as firms prepare for tough times ahead.

The service sector accounts for 70% of the UK economy.

Other news this week revealed construction activity slowed in October.

The PMI index fell from 53.8 in September to 51.6 last month – confounding expectations of a more modest fall to 53.

Meanwhile, UK manufacturing activity unexpectedly grew in October. The closely-watched CIPS/Markit manufacturing PMI rose to 54.9 in October from 53.5 the previous month.

Not only was the reading the highest since July, it surprised economists who had expected a fall to 53.1.

All sets of figures are likely to reduce the chance of more quantitative easing (QE) from the Bank of England in the short-term, according to experts.

Some have been calling for an injection of £50 billion via the Bank’s QE programme to boost the economy but recent data may mean the Bank will hold off for the short-term.

The Bank of England commenced its two-day rate setting meeting today and its announcement for interest rates and QE will be given at 12.00pm tomorrow.

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