Bank of England rate rise expected as UK services growth hits eight-month high

The Bank of England is expected to raise interest rates on Thursday after a closely watched survey showed growth across the UK services sector jumping last month to an eight-month high, supported by spending on artificial intelligence.

S&P Global’s survey of the services sector in October found that businesses regained much of the momentum they lost after the start of the Iran war. The same poll also recorded a renewed rise in cost pressures, with input-price inflation accelerating to a five-month high.

The purchasing managers’ index, a monthly gauge of business conditions drawn from company responses, is widely used by investors and policymakers as an early read on activity. A stronger services reading suggests the largest part of the UK economy picked up speed in October after a softer stretch earlier in the year.

Services cover a broad range of activity, from professional and financial firms to hospitality and business support. Because the sector accounts for most UK output and employment, a sharp improvement in the survey tends to carry more weight in the rates debate than a similar move in a smaller industry.

The Guardian reported that artificial intelligence spending helped lift the October result. The survey does not, in the material available here, break out how large that contribution was, or which types of firms led the spending. What is clear from the published account is that AI-related outlays were a factor in the rebound alongside a broader recovery in momentum.

That rebound is framed against disruption linked to the Iran war. The survey description says firms recovered much of the ground lost after the conflict began, without detailing in this account how the war fed through to orders, costs or confidence. The October print is therefore best read as evidence of a partial restoration of pace, rather than a full picture of the shock.

Faster input-price inflation complicates the growth story. Costs faced by services firms rose at the quickest pace in five months, according to the survey. Stronger demand can support profits and hiring, but a fresh acceleration in input prices is the kind of signal that keeps inflation concerns alive even when headline activity improves.

The Bank of England sets the benchmark interest rate that influences borrowing costs across the economy. An expected increase on Thursday would come as policymakers weigh a firmer services sector against renewed cost pressure. The reporting describes the move as expected; it does not specify the size of any change or the balance of opinion on the Monetary Policy Committee.

Markets typically treat services PMIs as a near-term steer for growth and inflation, especially when they arrive just before a scheduled rate decision. A reading at an eight-month high, paired with quicker input-price inflation, gives officials less room to treat the economy as still stuck in the post-shock slowdown described in the survey.

Uncertainty remains around how durable the pickup will be. One month’s survey can reverse if new orders fade, if AI-related spending proves lumpy, or if higher costs are passed on to customers and squeeze demand. The account available here does not include company comments, employment readings or a numerical PMI level beyond the eight-month and five-month comparisons.

Attention now turns to Thursday’s Bank of England decision and to how officials describe the outlook for growth and inflation. Further detail from S&P Global, and any subsequent official data, will show whether October’s services rebound and the faster rise in input prices persist beyond a single survey.