U.K. Growth Seen Picking Up as Firms Report Record Jump in Costs
U.K. economic growth unexpectedly picked up in October, while firms saw the largest increase in costs on record, according to a closely-watched survey that may strengthen the case for Bank of England interest rate rise next month.
IHS Markit said its measure of output across the whole economy jumped to 56.8 this month, the highest since July and well above a reading of 54 forecast by economists.
The increase, which bucks recent data indicating a slower recovery, was led by a pick-up in the U.K.’s dominant services industry. Companies reported buoyant spending from consumers and businesses alike, while employment numbers also picked up.
The combination of soaring inflation, solid labor-market numbers and faster growth may be enough to convince BOE policy makers to hike interest rates on Nov. 4. Markets are already fully pricing in a move, while economists also increasingly expect imminent action.
What Our Economists Say ...
“The composite PMI jumped in October, suggesting the economy regained some momentum as it entered 4Q. But several headwinds suggest it could be short-lived -- real incomes are being squeezed, fiscal support is being withdrawn and supply disruptions are pervasive. The survey supports our view that the Bank of England is likely to lift rates by the end of the year.”
--Dan Hanson, Bloomberg Economics. Click for the REACT.
Still, the survey also highlighted a series of problems in the economy.
Manufactures saw the slowest production growth in eight months due to shortages of materials and staff, with backlogs mounting at the fastest pace since June and almost two-thirds of firms complaining of worsening supplier delivery times. That pushed the average cost burden for firms up at the fastest pace since the survey began in 1998.
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