UK interest rates increase expected after services sector activity accelerates

UK interest rates increase expected after services sector activity accelerates Purchasing manager’s index at eight-month high, bolstered by spending on AI as firms regain momentum since start of Iran war

The Bank of England is expected to raise interest rates on Thursday after a closely watched survey showed growth across the UK’s services sector leapt last month to an eight-month high, bolstered by spending on artificial intelligence.

S&P Global’s survey of the services sector in October showed businesses regained much of the momentum they lost after the start of the Iran war, but also felt the impact of a renewed spurt of input price inflation, which accelerated to a five-month high.

Officials at the Bank have become concerned about inflation after the consumer prices index (CPI) rose from 3.1% in August to 3.5% in September .

While the nine-member monetary policy committee (MPC), which sets interest rates, has been split in recent months , a majority is expected to vote on Thursday for 0.25 percentage point increase to 4%.

Tim Moore, the economics director at S&P Global Market Intelligence, said a survey of the manufacturing sector earlier this week also showed businesses facing strong price pressures.

He said: “These signals underscore the near-certainty of a Bank of England rate hike in November and collectively raise the likelihood of further Bank of England policy tightening into 2027.”

Financial markets expect three further increases in the cost of borrowing, although most City economists believe inflation is likely to peak in the spring of next year, allowing the Bank to limit the number of extra interest rate rises to one or two.

Moore said service providers indicated the fastest upturn in activity since February and “a solid rebound in new orders”.

The S&P Global services purchasing manager’s index (PMI), which gauges growth across sector, rose from 52.1 to 52.8. A reading above 50 indicates a period of expansion.

Bigger workloads prompted businesses in the services industry to take on additional staff in October, the survey found.

This ended two years of continuous job cutting across the sector, with many businesses during that period saying that they were responding to higher labour and business costs, or not replacing employees who left.