U.K. Services Bounce Back in Sign Economic Growth Picking Up

  • Headline figure adds to case for rate increase before year end
  • Data suggest growth of 0.6 percent at start of fourth quarter

U.K. services growth accelerated in October after slumping to the worst performance in 2 1/2 years the previous month.

An index of activity by Markit Economics in London rose to 54.9 from 53.3. While that doesn’t regain all the ground lost in September, it beat the median forecast of economists for a reading of 54.5.

Markit said the survey, along with its construction and manufacturing reports, suggests the economy grew at a 0.6 percent pace at the start of the fourth quarter, faster than the rate in the previous three months. Employment across the three industries is also rising.

The pound jumped after the figures were released and was up 0.1 percent at $1.5430 as of 10:04 a.m. in London.

As Bank of England officials meet for their latest interest-rate decision, the report has something for both sides of the debate over when to begin raising interest rates. While services have strengthened, price pressures remain subdued with the input-cost index falling again in October.

The headline improvement “may coax more policymakers into raising interest rates before the end of the year,” said Chris Williamson, chief economist at Markit. “Dovish policymakers will note, however, the ongoing lack of inflationary pressures in October, suggesting that there is no need to rush.”

Within the input-price measure, while it’s the joint second lowest since 2009, there are some signs of underlying domestic price pressures. Markit said respondents highlighted wages and salaries as driving overall costs.

The BOE’s nine-member committee will announce its rate decision on Thursday. The committee voted 8-1 last month to keep the benchmark at a record-low 0.5 percent, though some economists forecast the vote could be 7-2 this week.

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