The dominant term in the UK economy is the British service sector, so news of how it is faring and sentiment within the service industry is keenly followed as a portent to the behaviour of the wider economy.
The most recent Markit Purchasing Managers’ Index for the service sector shows that the sector is expanding at a faster rate. The most recent value, for November show that it has picked up from an October reading of 54.9 to come in at 55.9. Any reading on this scale above fifty shows expansion whereas a value below 50 indicates that the sector is contracting. If, as this month, the numerical value is above the previous reading, it indicates that expansion is occurring at a faster rate than previously. The rate of expansion came in above analysts’ expectations which predicted a more modest pick-up of the pace to 55.
Markit believes that this latest indicator suggests that UK growth will pick-up slightly in the final quarter of the year, coming in at 0.6%. They noted that the volume of new business enjoyed its fastest rate of growth for four months as firms launched new products and reported better confidence about demand in the global economy, however expectations come from a low base which is as bad as has been seen for thirty months. Employment creation has also slowed. Nevertherless, earnings are improving which may feed through into stronger inflation, fuelling the chances of an interest rate hike. However, a body of economic opinion is suggesting that the Bank of England will leave rates on hold throughout the coming year. Interest rates in the UK have been at a record low of 0.5% since March 2009.