UK service sector growth improved unexpectedly in October to a four-month high on higher activity and new work, a survey showed Wednesday. But uncertainties stemming from spending cuts weighed on companies' expectations and employment decisions.
The seasonally adjusted Markit/Chartered Institute of Purchasing & Supply Purchasing Managers' Index for the service sector rose to 53.2 from 52.8. Economists had expected the reading to fall to 52.6. An above-50 reading suggests expansion in the service sector.
Driven by an increase in enquiry levels and rising levels of new sales, companies reported growth in October. Some respondents signaled success in converting pipeline business. However, overall sales growth remained modest and well below its trend level.
Respondents reported deferral of client spending, reflecting continuing uncertainty over the impact of government spending cuts on the economy. Business confidence remains historically subdued as such concerns dominated expectations of service providers. Again suggesting evidence of uncertainty, payroll numbers were slightly lower in October as companies chose not to replace leavers.
"With the survey providing an advance indication of the slowdown in official private services growth between July to September, the latest data therefore suggest that the sector is set to make a below par contribution to GDP in the coming months," said Paul Smith, senior economist at survey compilers Markit said.
UK economic growth slowed less than expected to 0.8% in the third quarter with robust construction output and services supporting recovery. While the recovery has slowed, Capital Economics economist Vicky Redwood said the economy is in no imminent danger of double-dip, further reducing the chances that the central bank announces any extra quantitative easing at Thursday's meeting.
The October services sector survey fails to provide major ammunition to either the more hawkish or more dovish members of the Bank of England's Monetary Policy Committee, IHS Global Insight economist Howard Archer said.
The UK central bank is widely expected to retain its key interest rate unchanged at 0.5% and to maintain the size of quantitative easing at GBP 200 billion.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.