Latest data released by Markit/CIPS - 22 October 2021

  • Prior 55.4
  • Manufacturing PMI 57.7 vs 55.8 expected
  • Prior 57.1
  • Composite PMI 56.8
  • Prior 54.9

UK business activity beat on expectations in October, regaining some momentum as overall growth is the strongest in three months. Services led the recovery but there was a notable slowdown in manufacturing output (weakest in 8 months) amid supply bottlenecks.

The manufacturing reading remains flattered by the elevated supplier delivery times though, in which the index is still extremely subdued (but oppositely reflected in the overall PMI index) due to supply and capacity constraints in general.

The worsening global supply chain crisis also contributed to the fastest rate of input price inflation in the UK since the index began in 1998. That just adds more fuel to the fire on rate expectations ahead of the BOE policy meeting next month. Markit notes that:

"The UK economy picked up speed again in October, but the expansion is looking increasingly dependent on the service sector, which in turn looks prone to a slowdown amid the recent rise in COVID-19 cases. Growth is also being accompanied by an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices in coming months.

"The news comes at a time when the Bank of England is already leaning towards hiking interest rates to safeguard against inflationary expectations becoming entrenched. The record readings of the PMI survey's price gauges will inevitably pour further fuel on these inflation worries and add to the case for higher interest rates.

"However, the economic growth signals from the PMI remain less convincing from a policy standpoint. The service sector is clearly in something of a sweet spot as the UK has seen more people's lives and livelihoods return closer to normal. Some of the growth momentum will therefore fade as this rebound passes. Moreover, rising COVID-19 case numbers pose a downside risk to growth in the coming months, potentially deterring some services-oriented activity among consumers in particular and potentially leading to the renewed enforcement of health restrictions as winter draws in."