The S&P Global UK services PMI index rose to 52.8 in October, up from 52.1 in September, marking the sector's strongest performance since February and ending a two-year stretch of continuous job cuts.
Any reading above 50.0 indicates expansion, while anything below signals contraction. October's figure was the strongest since before the escalation of the US-Israel conflict with Iran.
Stronger demand and AI investment drive activity
Business activity picked up pace partly due to stronger customer demand, leading to a rise in the volume of orders received during the month. Some companies reported increased sales driven by customers investing more heavily in artificial intelligence (AI) – a trend that has recently helped fuel economic growth.
Higher workloads led services sector firms to recruit additional staff in October, the survey revealed. This marks the end of two consecutive years of continuous job cuts across the sector, with many businesses during that period citing rising labour and operational costs, or choosing not to replace departing employees.
Sector faces cost pressures and mixed outlook
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 noted that while there had been a revival in recruitment, "the pace of job creation was only marginal as firms noted efforts to control costs and prioritise efficiency gains where possible".
Costs continued to climb for services firms, with the rate of inflation accelerating to a five-month high, according to the PMI survey. Businesses faced mounting pressures from energy, fuel and transport costs, staff salaries and raw material prices, leading to another significant rise in prices charged during October as firms passed higher costs on to consumers.
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. But official estimates show that most of the recent strength comes from the IT and professional services sectors. With at least some of that strength reflecting businesses' rapid adoption of AI technologies, we expect pockets of strength to sustain momentum into next year. But in a two-speed economy, consumer-facing services will come under increasing pressure as households' spending power is squeezed."
