Growth in the UK’s services sector has risen to an eight-month high, with firms returning to hiring after a two-year period of job cutting, a new survey has shown.
The S&P Global UK services PMI index, which is watched closely by economists, showed a reading of 52.8 in October, up from 52.1 in September.
Any reading above 50 means the sector is growing while any reading below signals it is contracting.
October’s score was the highest since February, prior to the escalation of the US-Israel’s war with Iran.
Business activity accelerated partly because of stronger customer demand leading to an increase in the level of orders that firms received during the month.
Some firms said they had more sales because customers were spending more on artificial intelligence (AI) investment – a trend which has recently helped drive growth in the economy.
Bigger workloads prompted firms in the services industry to take on additional staff in October, the survey found.
This ends two years of continuous job cutting across the sector, with many firms during that period saying that they were responding to higher labour and business costs, or not replacing employees who leave.
The services sector includes businesses like pubs, restaurants, theatres and salons, through to property, professional and financial services firms, and is the dominant industry in the UK.
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 prioritize efficiency gains where possible.”
Furthermore, 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 resulted in another sharp increase in prices charged by businesses during October, as firms pass higher costs onto 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.”
