Britain’s dominant services sector rebounds, cost burdens persist.
Activity in Britain’s services sector grew in November after three months of declines, according to a survey by S&P Global and CIPS. The final Purchasing Managers’ Index (PMI) for the services sector rose to 50.9 in November, up from 49.5 in October, surpassing the 50 threshold for growth. This positive trend is stronger than the provisional estimate of 50.5 for November. However, companies reported an increase in prices charged, which could be a potential concern for the Bank of England (BoE) ahead of its interest rates decision next week.
The services sector production gauge in November recorded its strongest reading since July, standing at 50.9. This growth is significant as October’s preliminary reading had caused bond market investors to push back their expectations for the BoE’s interest rate cut timing.
While the survey indicates an uptick in activity, there are concerns about rising prices charged. Respondents noted the fastest increase in prices since July, although the rate of inflation remained softer compared to the first half of the year. Rising staff wages were identified as the major contributor to the increase in input costs, leading to caution regarding the near-term inflation outlook.
Certain businesses have implemented hiring freezes due to strong cost pressures and concerns about the broader economic outlook. However, overall staffing numbers in the services sector showed improvement, with the employment index rising to 50.3 in November, compared to 49.2 in October and a near three-year low of 47.9 in September.
Despite signs that the tight jobs market in the UK was easing, some British firms continued to struggle with staff shortages. The BoE, which has maintained borrowing costs for the past two meetings after 14 consecutive increases, is closely monitoring how companies are setting wages and prices. The Monetary Policy Committee of the BoE is expected to announce its final rates decision of the year on December 14, with investors anticipating another hold in the Bank Rate at 5.25%.
S&P Global highlighted that some firms observed higher borrowing costs, which affected new orders. The composite PMI, which combines the services survey with last week’s manufacturing PMI, increased to 50.7 in November, up from 48.7 in October, surpassing the 50 threshold for the first time since July. Although manufacturing remains weak, there are signs of the downturn easing, according to last week’s PMI.
The recent rebound in Britain’s services sector provides hope for economic recovery. Despite concerns about rising prices charged, the sector’s growth is a positive sign for the UK economy. The BoE’s interest rate decision next week will undoubtedly be influenced by the survey’s findings, especially the trends in prices and wages. As the year comes to a close, all eyes are on the central bank’s decision and how it will navigate the challenges and opportunities presented by the services sector and the wider economy.
In conclusion, while the services sector in Britain rebounded in November, pushing activity into positive territory, the persistence of cost burdens and rising prices continues to pose challenges. The robustness of the sector is essential for the overall health of the UK economy, making the Bank of England’s upcoming interest rate decision a critical factor in navigating the path to recovery.
