William Schomberg

LONDON, Reuters – Britain’s economic momentum unexpectedly recovered in October. Cost pressures increased by the highest level in over 25 years according to a Friday survey. This could prompt the Bank of England (BoE) to increase interest rates for first time since the pandemic.

From September’s 54.9, the preliminary flash composite IHS Markit/CIPS purchasing managers’ index rose to 56.8. A Reuters survey of economists indicated that there would be a slowdown in the economy to 54.0.

Chris Williamson (IHS Markit chief business economist) stated, “The UK economy picked back up speed in October. But the expansion looks increasingly dependent upon the service sector which in turn seems prone to a slowerdown amid recent rise in COVID-19 patients.”

As consumers and businesses increased their spending, the rise in PMI was largely driven by Britain’s service firms. A relaxation in COVID-19 travel regulations was a boon for the tourism industry.

Since 2009, service sector activity has outpaced manufacturing output in terms of growth. This is because factories were again struggling with staff shortages.

The overall increase in employment, which was not affected by the difficulty in filling vacant positions, was very close to August’s records.

In January 1998 the average cost increased at the fastest pace since the launch of the combined composite index. Separate PMIs were released for manufacturing and services. They showed that the prices charged by firms increased the most in these sectors since 1996 and 1992, respectively.

The BoE expects to increase borrowing costs as soon as inflation reaches more than twice its target of 2% soon. This is to ensure that inflation expectations don’t become ingrained in pricing decisions for British companies.

On Thursday, the Confederation of British Industry stated that prices were rising by the largest amount since 1980 due to some of the greatest increases in labour costs since 1970.

PMI in the services sector rose at 58.0. However, the PMI for manufacturing’s output component, which IHS Markit claims currently shows a better sector picture than the headline index, sank to 50.6, the lowest level since February.

Many consumers remain concerned about the economic outlook despite the positive picture of most businesses.

The survey, published Friday morning, showed that Britons feel the most depressed since February. This was when they were locked down.