The UK's services sector grew at its fastest pace in eight months during October, with companies taking on staff again after a two-year stretch of job losses, according to a closely watched survey.
The S&P Global UK services PMI index recorded a reading of 52.8 in October, up from 52.1 in September. Any score above 50.0 signals expansion, while anything below indicates contraction. October's figure was the highest since February, before the escalation of the US-Israel conflict with Iran.
Demand and AI investment drive activity
Business activity picked up partly because of stronger customer demand, which led to a rise in the level of orders received during the month. Some firms attributed higher sales to customers spending more on artificial intelligence (AI) investment, a trend that has recently helped drive economic growth.
The survey found that bigger workloads prompted services firms to add staff in October, ending two continuous years of job cutting across the sector. During that period, many companies said they were responding to higher labour and business costs, or choosing not to replace employees who left.
Sector performance and cost pressures
The services sector, which includes pubs, restaurants, theatres, salons, property, professional and financial services firms, is the UK's dominant industry.
Tim Moore, economics director at S&P Global Market Intelligence, said October's survey signals "increasing economic resilience despite challenges from geopolitical tensions, elevated cost pressures and subdued consumer confidence". He added that while there was a renewal in hiring, "the pace of job creation was only marginal as firms noted efforts to control costs and prioritise efficiency gains where possible".
Costs continued to rise for services firms, with the rate of inflation accelerating to a five-month high, according to the PMI survey. Firms faced higher energy, fuel and transport costs, salaries for staff, and prices for raw materials. This led to another sharp increase in prices charged by businesses during October, as they passed higher costs onto consumers.
Outlook for the economy
Matt Swannell, chief economic adviser to the Item Club, said: "The UK economy has shown surprising resilience in the second half of the year, defying the post-pandemic trend of a slowdown in the second half." He noted that official estimates show most of the recent strength comes from the IT and professional services sectors, with some of that strength reflecting businesses' rapid adoption of AI technologies. He added that in a two-speed economy, consumer-facing services will come under increasing pressure as households' spending power is squeezed.
