Service sector growth beats expectations in the third quarter - but inflation is about to bite

Emma Haslett
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The services sector was going full throttle in October (Source: Getty)

Another day, another figure showing the economy was in pretty good nick in October, after output in the UK's largest sector beat expectations.

Markit/CIPS' purchasing managers' index (PMI) for the services sector rose to 54.5 in October, up from 52.6 in September and way higher than the 52.4 economists expected. Any figure above 50 denotes growth in the sector.

It wasn't all good news, though: the figures were driven by the weak pound, which drove a "marked intensification of cost pressures", with inflation in the sector jumping to its highest in five-and-a-half years.

“An encouraging picture of the economy gaining further growth momentum in October is marred by news that inflationary pressures are rising rapidly," said Chris Williamson, chief business economist at IHS Markit.

“The ugly flip-side of the weaker pound is clearly evident, with the rate of increase of service providers’ costs showing the largest monthly acceleration seen in 20 years of survey data collection.

"Costs are consequently rising at the fastest rate for over five years. If sustained, the increase in prices threatens to curb both corporate hiring and consumer spending, as firms seek to reduce staff costs and households see their pay eroded by rising inflation."

The news comes after figures yesterday showed output in the UK's construction sector increased in October, despite a fall in new business growth, while on Tuesday figures suggested growth in the manufacturing sector had dipped slightly.

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