Buoyant British service sector points to stronger GDP growth in Q4

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The British economy at the beginning of the fourth quarter is performing strongly, new survey data indicates, pointing to growth that could beat the expectations of the central bank.

Survey data released on Friday by Markit/CIPS showed the purchasing managers’ index (PMI) for the services sector rose to 55.6 in October from 53.6 in September, where above 50 indicates growth.

This marks a turnaround from the 11-month low of 53.2 in August, and was above the third quarter average of 53.5 in the survey data.

This points to an acceleration in quarterly services growth from Q3’s 0.4 percent rate to about 0.7 percent.

“Activity improved significantly to a six-month high, boosting fourth quarter growth hopes,” Howard Archer, chief economic adviser at economic forecaster EY ITEM Club told Xinhua.

The future activity index within the survey rose from 63.9 to 64.3, and the new orders index picked up from 53.3 to 54.8, above the average for the past four months.

A continued drop in the input prices index, to its lowest in over a year, indicates that the peak inflationary impact of sterling’s sharp decline after the Brexit referendum last year is close to peaking.

The services sector is dominant in the British economy, accounting for 77 percent of economic activity, however the PMI figures do not contain a retail sales element.

Retail sales are driven by household spending, and despite record high employment figures and average wage increases of about 2 percent per annum, households are finding spending challenged by the higher rate of inflation. Any changes in that behavior would not yet appear in the PMI data.

The services sector PMI figures follow similar figures for the construction and manufacturing sectors released earlier in the week, which also both indicated growth.

“October’s markedly stronger services survey follows on from improved manufacturing and construction surveys, although the construction PMI still only indicated marginal growth,” Archer said.

The combine PMI figure for all three sectors rose from 53.6 to 55.3, which points to growth for this quarter hitting 0.5 percent.

It would surpass the 0.4 percent growth for the quarter which the BoE’s Monetary Policy Committee (MPC) predicted on Thursday.

“Overall, the October PMIs suggest that the UK economy continued to improve gradually at the start of the fourth quarter, after GDP growth improved modestly to 0.4 percent quarter on quarter in the third quarter from 0.3 percent in both the second and first quarters,” said Archer.

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