The Bank of England is poised to raise interest rates on Thursday following a robust expansion in the UK’s services sector. S&P Global’s October survey revealed that activity in the sector hit an eight-month high, driven by increased spending on artificial intelligence. However, businesses also reported a surge in input price inflation, reaching a five-month peak.
The consumer prices index (CPI) rose from 3.1% in August to 3.5% in September, fueling concerns about inflation among Bank of England officials. The monetary policy committee (MPC) is widely expected to vote for a 0.25 percentage point increase, bringing the rate to 4%. Tim Moore, economics director at S&P Global Market Intelligence, highlighted that the manufacturing sector also faces strong price pressures, reinforcing the likelihood of further rate hikes into 2027.
The S&P Global services purchasing manager’s index (PMI) climbed from 52.1 to 52.8, indicating expansion. Businesses responded to larger workloads by hiring more staff, ending two years of job cuts. Moore noted that the survey suggested economic resilience despite geopolitical tensions and elevated cost pressures. The sector has benefited from demand for AI applications and software services linked to datacentre construction.
Matt Swannell, chief economic adviser to the Item Club, cautioned that while business-to-business services are thriving, consumer-facing sectors are struggling due to subdued consumer confidence. Rob Wood, chief UK economist at Pantheon Macroeconomics, estimated that underlying services inflation is around 4.1%, still too high for the MPC to ignore. Meanwhile, eurozone inflation reached a three-year high of 4%, increasing the likelihood of a rate hike by the European Central Bank in December.