Services PMI: Pound sterling rises against the dollar and the euro as services sector beats expectations in October

The pound edged slightly higher this morning after new figures showed the UK’s dominant services sector smashed expectations in October.

IHS Markit’s purchasing managers’ index (PMI) for services rose to 55.6 in October, two full points above the previous month’s reading and well above expectations of a fall to 53.3. Any figure above 50 denotes an expansion in the sector.

The services index followed strong showings from both the manufacturing and construction sectors earlier this week.

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The research showed order books and “resilient” demand from clients boosted the sector, alongside a “positive development in terms of operating expenses” as cost inflation eased to its lowest since September last year.

The only fly in the ointment was job creation, which fell to a seven-month low, suggesting confidence in the industry is still weak.

“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,” said Chris Williamson, chief business economist at IHS Markit.

“The good news was that October saw business activity across services, manufacturing and construction grow at its fastest rate for six months…. However, a downturn in business optimism about the year ahead, fueled mainly by Brexit-related uncertainty, suggests that risks are tilted to the downside as far as future growth is concerned.”

The pound rose into positive territory against the dollar on the news, spiking to $1.3072, 0.1 per cent higher on the day, after sliding in early trading. It managed more strength against the euro, rising 0.15 per cent to €1.1215.

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