UK services activity rose to an eight-month high in October, according to an S&P Global survey, strengthening expectations that the Bank of England will raise interest rates on Thursday. Businesses reported a rebound in orders and greater workloads, with spending linked to artificial intelligence among the sources of demand.

The services purchasing managers’ index (PMI) climbed to 52.8 from 52.1. A reading above 50 indicates expansion. The survey also found that firms added staff in October, ending a two-year period of continuous job cuts in the sector.

The improvement came alongside renewed cost pressures. Input price inflation reached a five-month high, and around four in 10 survey respondents said their input prices had increased, compared with 1% who reported a fall. The survey did not establish how much of these higher costs firms would pass on to customers.

The Bank’s concern about inflation has grown after the UK consumer prices index rose from 3.1% in August to 3.5% in September. A majority of the nine-member Monetary Policy Committee is expected to back a quarter-point increase, taking the rate to 4%.

S&P Global Market Intelligence economics director Tim Moore said services activity had recorded its fastest upturn since February, with new orders also rebounding. He pointed to improved sales opportunities, particularly those linked to AI investment. Demand for AI applications and software services has also benefited from the expansion of data centre construction.

However, the strength in business-to-business services has not been matched by consumer-facing activity. Matt Swannell, chief economic adviser to the Item Club, said weaker consumer confidence continued to weigh on high-street services, while pressure on household spending power could make conditions more difficult.

Financial markets are pricing in three further increases in borrowing costs. Most City economists, however, expect inflation to peak next spring and believe the Bank may need only one or two additional rises. In the eurozone, inflation reached 4% last month, its highest level in three years, increasing the prospect of a European Central Bank rate rise in December.

Sources: The Guardian Business.