Service sector growing but retailers take breather

FURTHER evidence of a healthy economic recovery is likely to emerge today with news of continuing strong growth in Britain’s powerhouse services sector.

Separate data released today does hint at a pre-Christmas lull on the high street. Picture: TSPL

The figures form part of the regular purchasing managers’ index (PMI) series and follow solid readings for both the manufacturing and construction sectors.

Analysts expect the main services activity index for October to remain well above the 50 mark that separates contraction from expansion, though the reading may be down slightly on September’s 60.3. The sector forms the engine room of the UK economy, accounting for almost three-quarters of overall output and encompasses the likes of financial services, retail sales and leisure operators.

While the PMI report does not factor in retailers, separate data released today does hint at a pre-Christmas lull on the high street.

A like-for-like rise in sales of just 0.8 per cent last month leaves firms relying on a bumper festive period to turn around their fortunes, according to figures from the British Retail Consortium and KPMG.

The paltry improvement during October, only slightly better than the previous month, is the latest sign of a challenging autumn on the high street after a buoyant summer lifted hopes of recovery.

David McCorquodale, head of retail at KPMG, said: “October was another difficult month for retailers, reminding us that recovery is a slow, relentless slog.

“Whilst the summer months hinted at increased consumer confidence, retailers will struggle to maintain a sustained sales recovery until wage growth outpaces price inflation.”

Yesterday’s construction PMI showed that the sector picked up speed last month, unexpectedly growing at its fastest pace in six years.

The headline activity index hit 59.4, up from 58.9 the previous month and the best rise in output since September 2007. It is the sixth month in a row of expansion in the construction sector, according to the survey.

House building has been the key driver of the ever-strengthening rebound, although the pace of expansion in this area slipped slightly from September’s near ten-year high.

Residential builders have been buoyed in recent months by easing credit conditions as well as government initiatives such as Help to Buy, with the latest extension of the scheme offering mortgage guarantees to help buyers get on to the housing ladder.

David Noble, chief executive of Cips, which co-produces the PMI series, said: “The future is looking bright for the UK construction industry as it soars into the final quarter with its strongest performance in over six years, boosted by a strengthening surge in activity broadening out across all sectors.”

IHS Global Insight economist Howard Archer said housing market growth needed to be “healthy but not excessive”.

The figures mirror the performance of UK manufacturers, with Cips reporting on Friday that output and new orders in the sector were close to recent 19-year records.