UK Rate Rise Expectations Build as Services Activity Hits Eight-Month High
UK households and businesses face the prospect of higher borrowing costs as the Bank of England prepares to consider a rate increase, with fresh data
UK households and businesses face the prospect of higher borrowing costs as the Bank of England prepares to consider a rate increase, with fresh data showing services activity strengthened sharply in October. Most members of the bank’s nine-person Monetary Policy Committee are expected to back a quarter-point rise, which would take the rate to 4%.
The S&P Global survey found services-sector growth reached its strongest level in eight months, as firms recovered much of the momentum lost after the Iran war began. Spending on artificial intelligence helped support the rebound.
Price pressures add to rate concerns
The stronger activity comes alongside renewed inflation pressure. Businesses reported that input prices rose at their fastest pace in five months, adding to policymakers’ concerns about the outlook for prices.
Consumer inflation has also accelerated. The UK consumer prices index rose to 3.5% in September, from 3.1% in August. The Bank’s rate-setting committee has been divided in recent months, but the latest activity and price signals have strengthened expectations of a majority vote for an increase.
Tim Moore, economics director at S&P Global Market Intelligence, said a manufacturing survey earlier in the week had also pointed to strong price pressures. He said the signals underscored the near-certainty of a rate increase.
Borrowing costs in focus
A move to 4% would raise the benchmark rate by 0.25 percentage point. The decision matters beyond the committee room: higher rates can increase borrowing costs for households and businesses, while the bank uses monetary policy to contain inflation.
The October services survey offers a mixed picture for policymakers. Firms are regaining momentum, supported in part by AI spending, but they are also facing faster increases in the costs of inputs. The committee must weigh that renewed growth against inflation that has risen in recent months.
The Bank of England’s decision is expected on Thursday. Investors, borrowers and businesses will be watching whether the committee’s recent divisions give way to a majority for the increase.
