The UK economy unexpectedly started to record good growth in October despite rising costs and mixed signals from consumers. Based on a survey released on Friday, the Bank of England (BoE) is expected to raise interest rates for the first time since the pandemic in the near future.
The IHS Markit/CIPS Purchasing Managers Index rose by the largest volume since May to 56.8, up from 54.9 in September.
The sterling rose to its highest level against the US dollar after survey data was released. This data is contrary to the data released previously where retail sales recorded a monthly decline for 5 consecutive months.
However, IHS Markit chief economist Chris Williamson warned that this indication should not be seen as a green light for the BoE in raising rates in November 04.
On the other hand the services sector is showing positive signs with increasing cases of Covid-19 infection which is likely to lead to changes in restrictions. Market researcher GfK said household data was increasingly under pressure due to higher price increases and a surge in Covid-19 cases.
Britain reported more than 52,000 new cases of Covid-19 on Thursday alone, the highest since the Delta variant wave spread in July.
IHS Markit said the rise in PMI was driven by British services firms as consumers and businesses spent more due to the lifting of some restrictions. The PMI for the services sector rose to 58.0, the highest in three months, while the output component of the manufacturing PMI recorded the lowest reading since February at 50.6.
With inflation soaring by more than double the target it is likely that the BoE will raise borrowing costs soon as inflation is expected to continue to rise.
However, some economists disagreed if the BoE continued to raise interest rates because they thought it would be better to wait for the British economy to grow at a pre -pandemic rate.
The GBP weakened slightly against the US dollar to trade level of 1.3788.
