A Bank of England rate rise is the central expectation for Thursday after UK services activity climbed to an eight-month high in October.
Services activity rebounds as hiring returns
S&P Global’s services purchasing managers’ index (PMI), a survey gauge of activity, rose from 52.1 to 52.8. A reading above 50 indicates expansion. Tim Moore, the economics director at S&P Global Market Intelligence, said service providers recorded their fastest upturn in activity since February. The survey showed businesses regained much of the momentum lost after the start of the Iran war.¹
Bigger workloads prompted services businesses to take on additional staff, ending two years of continuous job cuts across the sector. Moore said the survey pointed to greater economic resilience despite geopolitical tensions, elevated costs and subdued consumer confidence. He attributed the heavier workloads to a stronger pipeline of sales opportunities, particularly those linked to AI investment spending. Demand for AI applications and software services has also benefited from the boom in datacentre construction.¹
Bigger workloads prompted services businesses to take on additional staff, ending two years of continuous job cuts across the sector.
Rising costs complicate the rate decision
The consumer prices index (CPI) rose from 3.1% in August to 3.5% in September. Services businesses also reported accelerating input price inflation, which reached a five-month high. Moore said about four in ten businesses on the survey panel reported higher input prices, while only 1% reported a decline. He added that a manufacturing survey earlier in the week had also shown businesses facing strong price pressures.¹²
The services output price balance eased to 56.9 from 57.8 in September. Rob Wood, the chief UK economist at consultancy Pantheon Macroeconomics, said that reading was consistent with underlying services inflation of about 4.1%, below the latest official reading of 4.4%. For Thursday’s meeting, a majority of the Bank’s nine-member monetary policy committee is tipped to support a quarter-point increase, taking the rate to 4%.¹
Business services growth is not reaching every sector
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Read More →Moore said the survey signals made a November rate rise nearly certain and raised the prospect of further Bank of England policy tightening into 2027. Financial markets expect three more increases in borrowing costs. Most City economists put the inflation peak in the spring of next year, indicating that price pressures remain central to the rate debate even as services activity picks up.¹²
Matt Swannell, chief economic adviser to the economic forecasters the Item Club, said official data pointed to a surge in IT and professional services. He cautioned that business-to-business growth was not being matched on the high street. Swannell said squeezed household spending power was putting consumer-facing services under increasing pressure, and described a rate rise at the meeting as “nailed on”.¹
Mortgage costs depend on the type of loan
Just under a third of households have a mortgage, according to the government’s English Housing Survey. About 500,000 homeowners have loans that track the Bank of England rate; for a typical loan, the quarter-point change adds about £31 a month. Another 500,000 homeowners on standard variable rates depend on whether their lender passes on an increase. If it does, the typical repayment change is about £14 a month.¹²
Most mortgage customers, about 87%, have fixed-rate deals. As of 4 November, the average two-year fixed residential mortgage rate was 5.96% and the five-year average was 5.99%, according to financial information service Moneyfacts; the average two-year tracker rate was 4.67%. About 800,000 fixed-rate mortgages with rates of 3% or below reach expiry each year on average through the end of 2027.²
He cautioned that business-to-business growth was not being matched on the high street.
AI services hiring signals a skills shift
The services sector's first hiring uptick in two years, driven by AI investment and datacentre construction, points to where the next job growth sits. If you are weighing a move, IT and professional services show the strongest momentum, while consumer-facing roles face squeezed household spending. Building skills tied to AI applications and software services positions you for the expanding side of the market, not the high street.¹
For pay and mortgage planning, the rate rise to 4% and further tightening into 2027 raise borrowing costs. If you hold a tracker mortgage, budget for about £31 more per month; on a standard variable rate, expect up to £14. With 800,000 fixed-rate deals below 3% expiring yearly through 2027, locking in a new rate soon matters. Ask for salary increases that keep pace with 3.5% inflation, not just the headline rate.¹²
Sources
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Read More →Written by Career Ahead AI. AI can make mistakes, so verify key facts. Report errors to support@careeraheadonline.com
