Services sector powers ahead but cost pressures build

Consumers faces a squeeze on their spending power amid rising inflation. Picture: John Devlin
Consumers faces a squeeze on their spending power amid rising inflation. Picture: John Devlin
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Britain’s powerhouse services sector remained firmly in expansion territory last month despite costs rising at their fastest pace for more than five years.

The latest Markit/Cips purchasing managers’ index (PMI) for the sector revealed a headline reading of 54.5 for October, up from 52.6 in September and above economists’ expectations of 52.5. Any reading above 50 denotes growth.

Total business activity pushed ahead at levels not seen since January, but the slump in the value of the pound since June’s Brexit vote saw input price inflation touch its highest level since March 2011.

READ MORE: Construction scales seven-month high but costs mount

Chris Williamson, chief business economist at IHS Markit, said the encouraging picture for the UK economy was being tainted by inflationary pressures.

“What’s especially reassuring is that growth is also becoming more balanced,” he added. “Manufacturing is leading the expansion as exporters benefit from the weaker pound, but services growth is also reviving and construction is being boosted by renewed house building.”

Howard Archer, chief UK and European economist at forecasting consultancy IHS Global Insight, said: “We suspect that the fundamentals for consumers – which currently remain largely decent – will diminish over the coming months.

“Consumers are likely to face less favourable purchasing power as inflation rises and earnings growth is limited by companies striving to limit their costs.”

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