UK services sector stays strong, BoE on course for rate hike

The UK services sector, which makes up about three quarters of the overall economy, registered strong growth in September, strengthening the case for another Bank of Enlgand rate hike this year. The rate setting Monetary Policy Committee is still expected to hold off hiking until November, however. This Thursday's rate verdict is predicted to bring no change. In data out this morning, the Chartered Institute of Purchasing and Supply's services sector index rose to 57.0 from 56.7 in August, beating predictions of a dip to 56.2. A reading above 50 indicates growth. Prices charged dipped to 61.0 from 63.9 while input prices fell to 54.8 from 55.4. Business expectations jumped to 73.1 from 70.6, recovering the losses seen over the previous two months while employment was up at 54.2 from 52.8. "The gain in the services PMI may have been small, but it is significant," said Daragh Maher at CALYON, pointing out that the services sector makes up the bulk of the UK economy. "With the manufacturing PMI delivering an upside surprise earlier this week, there appears to be renewed traction in the UK economy which will increase the chance of a rate hike at the November meeting," he added. Howard Archer at Global Insight pointed out that the Bank of England will be pleased to see the prices charged and input prices indices both moving down in September. However, both remain higher than the central bank would like. "Overall the services PMI is unlikely to push the Bank of England towards raising interest rates on Thursday, but a 25 basis point hike in November remains very much on the cards," he added.