UK businesses have been hiring people at the fastest rate in 16 years to keep up with the recent increases in new orders.

The Markit/CIPS UK Services Purchasing Managers’ Index also rose to 62.5 in October (substantially higher than the neutral number of 50), up from September’s 60.3 and well above projections that it would actually drop to 59.8.

There are now expectations that the Bank of England will raise its growth forecasts for the UK in its Inflation report next week.

Cost inflation did however increase according to the PMI due to higher utility and wage bills.

Chris Williamson, Chief Economist at survey compilers Markit:

Historical comparisons of the PMI against gross domestic product suggest the latest survey data are consistent with a 1.3% quarterly rate of GDP growth, up sharply from previous quarters. The surveys also indicate that the rate of private sector job creation is currently running in excess of 100,000 per quarter.”

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply:

In conjunction with manufacturing and construction, the services sector hit a record high in October in new business growth and the best rise in activity since May 1997, rounding off a sparkling start to Q4 for the UK economy. Confidence is high that this run of growth can be maintained throughout the final quarter, underpinned by the stable economic climate and improvements in the housing market."

Sasha Nugent, Caxton FX Analyst, commented:

An impressive figure from the service sector finishes of yesterdays positive PMI releases. The outlook for the UK is looking brighter and with manufacturing, construction and service sectors all pointing to solid growth, the probability the BoE will have to raise its quarterly growth projections is increasing.

"A more optimistic BoE and an increasingly dovish ECB is likely to force the GBPEUR rate higher.

Upward TrendNida Ali, economic advisor to the Ernst & Young ITEM Club, said:

The services sector has started the fourth quarter with a bang. These figures beat even the most optimistic expectations, as most commentators, after strong outturns in the past couple of months, were expecting the pace of services growth to slow in October.

The all-sector PMI, which covers service, manufacturing and construction, rose 1.3 points in October to be 61.5, hitting its highest ever level, suggesting that growth is set to accelerate further in Q4. But there appears to be some divergence in the survey results and actual data. For instance, the PMI results in Q3 had suggested output growth of more than 1.5%, but official data was only half of that. So we would be wary of drawing any firm conclusions about Q4 growth just yet.

The strong increase in employment supports our view that the unemployment rate is on track to drop below the 7% forward guidance threshold well ahead of schedule. We expect it to move below 7% by mid-2015, a year ahead of the Bank of England's current forecast. However, given the positive developments in the last couple of months, the Bank is likely to downgrade its unemployment forecast in its next Inflation Report due next Wednesday. This will probably be accompanied with upward revisions to growth as well.”

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