Services gain pace 'but real growth remains subdued'

Britain's crucial services sector expanded at a faster pace in October than September, boosted by higher levels of new business., according to data published yesterday.

But firms cut jobs and were more subdued as they digested the comprehensive spending review, which included 81 billion of savings and 490,000 public sector job cuts, research group Markit and the Chartered Institute of Purchasing & Supply (Cips) said.

Economists said the overall findings were unlikely to change expectations that the Bank of England will vote not to alter interest rates or inject more stimulus into the economy todayat the conclusion of its latest policy meeting.

The headline business activity index in the latest Markit/Cips services report rose to 53.2 last month from 52.8 in September - the highest reading since June and confounding forecasts for a dip to 52.5.

Cips' chief executive, David Noble, said: "On the face of it, with a four-month high, October's services PMI figure looks positive, but real and sustained growth remains subdued.

"The consequences of government spending cuts are not yet fully realised and business expectations remain historically low."

The service sector accounts for 70 per cent of total UK economic output, encompassing everything from banks and legal firms to hotels and restaurants.

Commerzbank economist Peter Dixon said: "(The report] reaffirms what we already knew: there's absolutely no need for the BoE at this stage to engage in any further quantitative easing and they're very much on hold for the foreseeable future."

The services PMI followed an unexpectedly robust survey of manufacturing activity and weaker construction and jobs PMI data earlier this week, but on balance suggest Britain's economy made a solid start to the final quarter of this year.