Economy picks up steam boosted by new orders

The services sector represents more than three-quarters of output

By Sunita Patel-Carstairs, Business Reporter

The economy picked up steam in October thanks to rising new orders, according to new figures for Britain's dominant services sector.

Monthly purchasing managers' index (PMI) data from Markit/CIPS UK Services showed higher than expected growth in the industry with a reading of 55.6 – up from 53.6 in September.

A reading above 50 indicates growth. Economists had forecast a figure of 53.2 for the sector, which represents more than three-quarters of output.

It follows strong performances in both the manufacturing and construction sectors, with the report saying the UK economy was on track for a 0.5% expansion in the final quarter of this year, edging up from 0.4% in the third quarter.

The latest services growth is the fastest since April, it said, supported by "improved order books and resilient client demand".

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However, job creation slipped to a seven-month low amid "squeezed margins" and a dip in confidence about the economic outlook.

Chris Williamson, chief business economist at IHS Markit, said: "While an upturn in business activity growth adds some justification to the Bank of England's decision to hike interest rates for the first time in a decade, a deeper dive into the numbers highlights the fragility of the economy and points to downside risks for the outlook.

"A downturn in business optimism about the year ahead, fuelled mainly by Brexit-related uncertainty, suggests that risks are tilted to the downside as far as future growth is concerned."

The data comes a day after the Bank of England raised interest rates by 0.25 percentage points to 0.5%.

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Governor Mark Carney signalled that Brexit was at the heart of weaknesses in the economy – driving up inflation through the fall in the pound since the referendum and holding back growth just as expansion elsewhere in the world is accelerating.

He said the Bank's next move would be heavily influenced by the progress of talks on Britain's departure from the European Union.

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