UK service sector PMI slows more than forecast in September

UK service sector PMI slowed more than forecast in September to 58.7 from 60.5 in August, Markit revealed. Analysts predicted a reading of 59.

However, the UK’s private service sector economy remained above the 50 level that signals expansion, thanks to a sharp rise in new business volumes.

Capacity was still under pressure and companies seemed encouraged to add to their payroll numbers. Confidence in the future also helped to support payroll expansion, with latest data showing business expectations at a three-month high.

Howard Archer, chief economist at IHS, said the strong index reading suggested the Bank of England would not raise interest in the immediate future.

“With the purchasing managers reporting still strong but slightly slower expansion in September, it seems unlikely that the Bank of England will hike interest rates before the end of this year,” Archer said in a note on Friday.

“It certainly looks a pretty safe bet that the Bank of England will keep interest rates at 0.50% at its October policy meeting next week.

“While two Monetary Policy Committee members again voted for a rate hike from 0.50% to 0.75% in September, the majority of the committee do not seem in any great hurry to act at the moment.”

Companies reported that a combination of rising new business and higher new enquiry levels had supported growth during the latest survey period.

According to data released on Friday, new business volumes continued to increase, with the rate of expansion improving after falling to a three-month low in August.

Demand was strong and client confidence was high, while marketing pushes played a crucial role in driving growth higher over the month.

“September’s PMI surveys suggest that the UK most likely enjoyed another spell of above-trend economic growth in the third quarter, but that the pace of expansion is showing signs of moderating as we move towards the end of the year,” said Chris Williamson, chief economist at Markit.

“The slowdown is in line with Bank of England projections and, alongside record low pay growth, adds to the case for interest rates to remain on hold until next year and until there are at least clear signs of wages and household incomes rising in real terms.”