Analysts said the sharp slowdown added to the likelihood that GDP will move back into contraction in the fourth quarter, and could boost the case for more quantitative easing (QE) at the Bank of England’s meeting on Thursday.
Markit’s service sector purchasing managers’ index (PMI) dived to 50.6 in October, from 52.2 in September – the 22nd consecutive month of growth, but also the slowest of the stretch.
Combined with an accelerating downturn in manufacturing, and continued gloom in construction, analysts forecast declining UK GDP over the fourth quarter.
“This is just the latest reminder that we should not get too carried away by strong GDP growth in the third quarter,” said Robert Wood at Berenberg.
“With manufacturing output suffering from weak exports and domestic demand and the service sector flirting with contraction, a fall in GDP in the fourth quarter now looks most likely,” Wood added.
Though Wood thought the data, and its worrying implications, would have little effect on the Bank’s decision on QE at the November meeting, when the previous batch of stimulus comes to an end, other analysts disagreed.
“Even though recent speeches by monetary policy committee members have been against more QE, disappointing results for October’s PMI surveys could mean the vote for further asset purchases this month will be a close one,” said Nida Ali at Ernst & Young’s Item Club.