The latest Purchasing Managers Index (PMI) came in at 58.6 for November, ahead of the 56.5 expected and 56.2 in October, in another boost for the UK economy hours before the chancellor’s Autumn Statement.
The service sector accounts for around 78 per cent of UK GDP and three quarters of all jobs.
The survey indicated firm demand and a rise in new business, while rising wage bills driving up costs were offset by lower fuel costs, according to Markit.
Markit chief economist Chris Williamson said the indicator of faster growth in services activity brought “welcome news that fears of a potentially sharp slowdown in the economy look overplayed”.
“The upturn in the service sector offset slower growth of factory production and construction activity in November, lifting the overall pace of economic growth from October’s 16-month low,” added Williamson.
The figure takes composite PMI, including the service, manufacturing and construction activity to 57.6, up from 55.8.
Meanwhile, growth in Europe’s services sector hit an 11-month low as activity slowed even more than expected in November.
Eurozone PMI came in at 51.1, slightly below the 51.3 expected and behind the 52.3 in October, another signal of the areas economic slowdown.
It's "more unpleasant news for the European Central Bank", concluded IHS's Howard Archer, "both on the activity and prices front, and add further late pressure for some action at its 4 December policy meeting".
UK SERVICES PMI: WHAT THE ANALYSTS SAY
The survey data available so far for the fourth quarter are signalling a GDP rise of 0.6 per cent, down from 0.7 per cent in the third quarter but still an impressively robust pace which would mean the economy grew 3.0 per cent in 2014.
Employment continued to rise strongly in services as well as manufacturing and construction, meaning the jobless rate looks set to fall further from the current level of 6.0%. There are also signs that wage growth is picking up alongside the improving labour market, which should help boost household incomes and consumer spending.
Fortunately, higher staff costs are being countered by falling fuel prices, giving policymakers greater scope to hold off from raising interest rates amid the ideal combination of robust economic growth and low inflation.
- Markit's Chris Williamson
At 57.4, the average reading for October and November remains comfortably above the long-run and pre-crisis averages, and suggests only a small loss of momentum since the first half of the year (average service PMI Jan-Jun was 58.5).
The UK is riding out the squalls blowing in from across the Channel as domestic spending remains strong, egged on by low interest rates, firm confidence and rapidly rising employment. Today’s services PMI also gives hope that the relative strength will continue, with new order flows still rising strongly and services firms adding to jobs at the fastest rate since July.
There is an element of whether this latest services reading is too good to be true given the concurrent slowing in the Eurozone services PMI for this morning. There is still time for fallout from weaker Eurozone sentiment to feed through to the UK.
Indeed, this latest PMI jump could just be noise. So we remain cautious about growth prospects over the next few months. But taken at face value it points to upside risks to our above consensus forecast for 2.9 per cent growth next year.
At the first signs of slowing growth abroad, the BoE were quick to raise the warnings. Mark Carney talked of a spectre haunting Europe. David Cameron said red warning lights were flashing on the dashboard. In our view, that gloom is overplayed and the UK seems to be riding it out well.
- Berenberg's Rob Wood
The composite PMI, which is an amalgamation of the output/activity indices in the services, manufacturing and construction PMIs, picked up smartly in November. As with the services survey, the new orders and employment indices rose on the month.
Overall, the UK composite PMI remains high by historical standards and consistent with further above trend growth. To the extent that it has moderated during the course of 2014, this largely reflects manufacturing, for which the PMI is more notably below the elevated levels seen up to June this year.
The persistent strength of the employment indices is noteworthy in the context of a tightening labour market; the compositePMI employment index points to further robust gains in employment in the near term.
- BNP Paribas' Dominic Bryant