- October’s services PMI rose to a three-month high, providing some reassurance that the economic recovery is far from out of steam. But a record rise in cost pressures pointed to a supply-side still trying to keep pace with demand.
- More evidence of inflationary impulses building may bolster those MPC members on the verge of voting for higher interest rates in November’s meeting. But tomorrow’s decision still looks to be on a knife-edge.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Despite news of shortages and rising prices, October’s services PMI increased to 59.1 from September’s 55.4. This was the highest for three months and the biggest monthly gain since April. Respondents to the IHS Markit/CIPS survey cited the reopening of the economy and looser international travel restrictions as supporting activity. The increase in October’s services PMI was more than enough to offset a comparatively weak reading for manufacturing output and push the composite PMI up to 57.8, the highest since July.
“However, evidence of momentum in services activity went hand-in-hand with more signs of burgeoning cost pressures. Measures of services input and output prices both rose at the fastest pace since the survey began in July 1996. Costs were pushed up by supply-chain challenges and higher wages as companies responded to a shortage of staff.
“Further evidence of inflationary pressures will no doubt be noted by those MPC members considering voting for a rise in Bank Rate in November’s meeting, the outcome of which will be announced on 4 November. But those pressures still look predominately to be the result of the adjustment pains of an economy emerging from hibernation, which should give pause for thought. While November’s MPC decision looks to be on a knife-edge, the EY ITEM Club thinks a majority on the committee will stick with a ‘wait-and-see’ approach, with a rate rise deferred until February.”