Going against the Bank of England’s view that Britain’s recovery may be “measured”, the October PMI reading came in a t a peak not seen since May 1997, with the headline business index rising to 62.5, up from last month’s 60.3 reading.
Analysts at Barclays Capital said that consensus had expected a much lower reading of around 60 for October, and pointed out that today’s more upbeat data – combined with positive news from the construction and manufacturing sectors – hinted that Q4 had gotten off to a strong start.
Record
Back at the beginning of 1997, activity within the UK’s services sector reached an all-time peak, and Barclays noted that today’s data from the Office for National Statistics showed broad brush improvement. Moreover, the firms quizzed for the survey attributed the latest activity rise to better market sentiment, particularly surrounding the housing sector, which is likely to keep the momentum going thanks to schemes like Help to Buy.
Barclays commented: “The new business index rose by 2.8 points to 63.4, reaching the highest since the survey began in 1997.
“This rise in the pace of growth of new business bodes well for overall activity in the coming months, and makes today’s outturn appear more grounded.”
Jobs
The bank’s analysts also pointed out that employment prospects for Britons also looked in better shape, adding that the employment index had risen to 56.2 during October, its highest level in over 16 years.
Payroll numbers were on the up, too, and climbed for their tenth consecutive month. Looking at its internal data, Barclays said that growth was increasing and that Bank of England may be too pessimistic in its view about where the recovery is coming from, after it cautioned at the end of August that the UK’s turnaround was “more measured than rapid”, and that it could take some time before the jobless rate fell within the Bank’s 7% target range.
Barclays argued: “Our in-house composite PMI index rose to 61.2 from 60.2 in September, suggesting acceleration in the pace of growth.
“Employment indices have also been strong in recent months and if sustained, would go against the Bank of England’s view that we can have a jobless recovery that would ensure a recovery in the UK’s productivity,”
Strong Q4
Markit Economics also picked up on the strong jobs growth, and said the data was consistent with quarterly GDP growth of 1.3% and increased the likelihood the Bank’s economic projections would be revised up when it published its November Inflation Report.
Previously, the Bank said it expected Q3 GDP growth in the region of 0.5% and roughly 0.6% for Q4.
Unemployment was not expected to fall to around the 7% level until 2016, though Markit’s chief economist Chris Williamson said the he surveys indicated the rate of private sector job creation was currently running in excess of 100,000 per quarter. “Such a strong pace of growth should eat further into unemployment, which is already showing signs of falling fast,” he added.
