Sector’s best growth for 16 years

An industry survey released yesterday easily beat forecasts, while the European Commission and a leading think tank revised up their forecasts for UK growth. That makes it more likely the Bank of England will do the same next week, bringing higher interest rates closer into view.

Living standards – a big political battleground – have yet to benefit, however. Retail sales data were lacklustre and company results showed shoppers favouring cheaper stores.

Financial data company Markit said its services purchasing managers’ index jumped to 62.5 in October from September’s 60.3, confounding economists’ forecasts for a fall to 59.8.

Markit said that, combined with strong manufacturing and construction PMI surveys, the reading suggests quarterly economic growth of 1.3 per cent, up from 0.8 per cent between July and September. “The UK economic recovery moved up a gear again in October,” said Chris Williamson, chief economist at Markit.

Sterling rose to a four-week high versus the euro and British government bond prices fell.

“Momentum particularly in the domestically-exposed services sector is stronger than we expected just a few months ago,” said Jens Larsen, chief UK economist at Royal Bank of Canada.

“We expect that the (BoE’s) forecast will be similarly affected, with a stronger growth profile and a more rapid fall in unemployment compared to their August forecast,” he added.