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The Actuary The magazine of the Institute & Faculty of Actuaries

Service sector growth hits six-month high

The UK’s service sector expanded at it fastest rate for six months in October, according to the latest IHS Markit/CIPS UK Services PMI survey.

Service sector growth / shutterstock
Service sector growth ©Shutterstock

This was largely due to improved order growth following a 13-month low in September, as well as resilient client demand and new work increasing at the fastest rate since May.

Anecdotal evidence also suggests successful product launches helped, while some providers indicated a willingness to absorb a spike in operating expenses to retain competitive pricing.

However, the rate of job creation slipped to a seven-month low, and confidence for growth prospects remained muted, with economic uncertainty and investment worries weighing on some respondents.

“The main source of longer-term anxiety continues to be the path to Brexit,” CIPS director of customer relationships, Duncan Brock, said.

“At the same time, it remains to be seen whether consumers will be spooked by the recent rate rise, and if it will curb their spending, adding to the service sector’s uncertainty about future prospects.”

Although input cost inflation eased to a 13-month low in October, businesses were paying more for salaries and imported goods, with those costs passed on to consumers at the fastest rate since April.

The sector increased from 53.6 in September to 55.6 in the IHS Markit/CIPS business activity index last month, with any value above 50 signifying an improvement, and anything below that a deterioration.

Similar results were found in two other PMI surveys for manufacturing and construction, with IHS Markit chief business economist, Chris Williamson, saying the data points to economic growth of 0.5% in the final quarter.

“Business activity across services, manufacturing and construction grew at its fastest rate for six months, representing an encouragingly solid start to the fourth quarter,” he continued.

“However, a downturn in business optimism about the year ahead, fuelled mainly by Brexit-related uncertainty, suggests that risks are tilted to the downside as far as future growth is concerned.”

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