UK services firms report strongest outlook in a year as inflation pressures wane, PMI shows

LONDON (Reuters) -Output and new orders in Britain's services industry picked up last month, according to a survey released on Wednesday that showed expectations for activity in the next 12 months were the highest since October 2024. 

The S&P Global UK Services Purchasing Managers' Index (PMI) rose to 52.3 in October from 50.8 in September, and was higher than a preliminary "flash" reading of 53.2.

The survey of Britain's dominant services sector is welcome news for finance minister Rachel Reeves, who has made growth her priority, ahead of possible tax rises in her annual budget on November 26.

"A number of firms noted resilient customer demand, especially in domestic markets, despite elevated business uncertainty and delayed decision-making on major spending ahead of the Budget," Tim Moore, Economics Director at S&P Global Market Intelligence, said.

"Labour market conditions finally showed some signs of stabilisation, with the pace of job cuts in the service economy slowing considerably since September."

A measure of employment showed employers shed staff much less quickly.

The composite PMI, meanwhile, which also includes the strongest reading for manufacturing in a year, jumped to 52.2 from September's final reading of 50.1. A Reuters poll had forecast a smaller increase to 51.1.     

Services firms noted higher wages were pushing up input prices, although the rate of cost inflation was the lowest since November 2024. Prices charged by firms increased at the slowest pace since June.  

The Bank of England, which is broadly expected to hold interest rates at 4% on Thursday, is watching service sector prices as it tries to assess inflation pressure in the economy. 

The PMI survey also showed strength in order books - mainly from domestic clients - which boosted business expectations for the year ahead.

But, there was some hesitation among executives on taking key decisions ahead of Reeves' budget. Reeves has warned of some tax increases as she tries to find the money to improve public services and to invest to help speed up economic growth.

(Reporting by Suban Abdulla; Editing by Hugh Lawson)