UK flash services PMI hits 53.1 in October, surpassing expected 51.8

• The prior figure was 52.1.
• Manufacturing PMI reached 52.8 against the 51.7 expected.
• This was an increase from 51.9 before.
• Composite PMI hit 53.1, versus the 51.8 forecast.
• The previous composite index was 52.0.

Primary findings:

Business activity picked up at the strongest rate since February, supported by a recovery in order placements.

Observations:

Chris Williamson, who is Chief Business Economist at S&P Global Market Intelligence, offered the following view:

“The UK economy has picked up momentum in October, with early PMI data indicating the strongest rate of growth since February. This encouraging sign of economic resilience is underscored by firms taking on additional workers for the first time since hiring was hit by the 2024 Autumn Budget.

"There are reports of paused spending due to a lack of clarity on domestic economic policy in the run up to the Budget, meaning the promising economic picture from the latest PMIs should provide an encouraging base for further robust economic growth through the winter months, barring any adverse surprises to businesses in the tax and spending review.

"Geopolitics, and notably the potential for conflicts in the Middle East and Ukraine to add to energy market volatility, are, however, clearly still unsettling many businesses, and cost of living concerns and broader fiscal worries are being compounded by the shift to higher borrowing costs.

"Price pressures remain worryingly elevated, not only making a rate hike from the Bank of England at its upcoming policy meeting a near certainty but also likely shortening the odds of further rate hikes into 2027.”

October data confirmed a rebound in UK economic activity. The composite PMI climbed to 53.1 from September's 52.0, marking the best reading since February. Expansion sped up in both manufacturing and services, while new bookings grew at the quickest rate in 25 months. Hiring turned positive for the first time since September 2024.

This stands in contrast to slowing growth in the eurozone. The difference in economic strength has been aiding the British pound against the euro, pushing EUR/GBP lower following the upbeat UK figures.

The results also strengthen the case for Bank of England rate increases, with the central bank needing to combat inflation. Input cost inflation quickened to its fastest rate since June, mainly due to climbing energy prices. While selling price inflation eased a little, the enduring economic strength, improved ordering, and recovery in hiring leave the BoE with limited room to be patient and look past the shock.