UK growth hopes lifted by upturn in services sector

Output in the services sector accelerated for the first time since June
Output in the services sector accelerated for the first time since June
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HOPES for a pick-up in the UK economy were boosted after figures yesterday suggested growth in the dominant services sector strengthened for the first time in four months.

The latest Markit/Cips purchasing managers’ index (PMI) survey for the services sector – which includes areas such as leisure and hospitality, but excludes retail – showed a reading of 54.9 last month, up from a two-and-a-half-year low of 53.3 in September. A figure above 50 indicates growth.

We expect GDP growth to pick up in the fourth quarter

Howard Archer

This follows robust surveys from the manufacturing and construction sectors earlier this week, with experts predicting the October performance should help revive growth in the wider economy for the final three months of the year after it eased back to 0.5 per cent in the third quarter.

Although the figures were seen as a positive surprise, analysts at Barclays cautioned that the upturn “appears to be temporary” and suggested much of the growth could be put down to increased activity around the Rugby World Cup.

But Chris Williamson, chief economist at Markit, which compiles the survey, said the overall picture for the economy was rosy: “The PMI surveys brought welcome news of faster economic growth at the start of the fourth quarter.”

He added: “The survey data point to GDP rising at a quarterly rate of 0.6 per cent at the start of the fourth quarter, up from 0.5 per cent in the third quarter.

“Such an improvement, together with the revival in hiring signalled by the three surveys, with job creation hitting an eight-month high in October, may coax more policymakers into raising interest rates before the end of the year.”

Howard Archer, chief UK and European economist at IHS Global Insight, said he believed GDP stood a good chance of rising as high as 0.7 per cent at the end of 2015, thanks to rising consumer spending power.

The PMI surveys showed rising employment across the economy, with new jobs in the services sector being created at the fastest rate for five months.

Archer said: “We expect GDP growth to pick up to at least 0.6 per cent quarter-on-quarter in the fourth quarter and it could very well get back up to 0.7 per cent quarter-on-quarter if consumers splash out this Christmas.” He is pencilling in a rate rise in the first half of 2016.