US and UK Service Sectors Face Rising Inflationary Pressures
The US and UK service sectors reported growth in October, though both face intensifying cost pressures and inflation that may trigger a US Federal Reserve rate hike.
The United States and United Kingdom service sectors both expanded in October, though they faced diverging growth trajectories and shared inflationary challenges. In the UK, the services sector reached an eight-month growth high, with the S&P Global index rising to 52.8. This growth ended a two-year period of job cutting, driven largely by AI investments in IT and professional services. However, analysts warn of a two-speed economy where consumer-facing services struggle as household spending power declines.
Conversely, the US service sector expanded at its slowest pace in three months, with the ISM services index dipping to 54.5%. While the US Composite PMI suggests an annualized GDP increase of over 4%, the sector faced strained supply chains and the highest supplier delivery times since April. These disruptions are linked to import tariffs and conflict in the Middle East, specifically affecting commodity shipments through the Strait of Hormuz.
Both nations are grappling with elevated costs. UK firms reported a five-month high in inflation due to energy and raw material costs. In the US, average prices for services rose at one of the fastest rates in four years, contributing to a four-year low household saving rate of 3.8%. Because inflation is expected to exceed the 2% target into 2027, the Federal Reserve System is now more likely to implement an interest rate hike in December, having maintained rates between 3.75% and 4.00% last week.
