The Bank of England is likely to raise interest rates several times in the coming months after businesses increased their headcount for the first time in over two years, analysts have predicted. 

Survey figures released by S&P Global, which are closely monitored by government officials and central bankers, showed stronger activity across services firms.  

The dominant sector posted the fastest level of growth since February while greater demand and increased order books, including on AI, supported businesses. 

The purchasing managers’ index reading rose to 52.8 in October from 52.1 in the month before. Any reading above 50 denotes a rise in activity. 

The overall PMI for the UK’s private sector, which also accounts for manufacturing, in October was 52.9. Researchers also said that the business staff figures edged into growth territory for the first time in 25 months after managers had brutally slashed headcount due to higher taxes and salary costs over the last two years.

Jobs market to be hit with interest rate hike

Signs of a late-year growth spurt in the UK economy will raise the likelihood of several interest rate hikes by the Bank of England as they look to stamp out rising inflationary pressures, analysts said.

Tim Moore, economics director at S&P Global, said the signals “underscore the near-certainty of a Bank of England rate hike in November and collectively raise the likelihood of further Bank of England policy tightening into 2027”. 

S&P Global suggested that inflation on input costs for businesses accelerated to the strongest level since June although the pace at which services firms raise prices slowed slightly. 

Pantheon Macroeconomics analysts said that intensifying price pressures and steady demand in the data “suggests all roads lead to multiple hikes over the coming months unless energy prices tank”. 

They added that rate-setters at the Bank would have to “remain cautious” when reading over data on services raising prices.

The Bank’s Monetary Policy Committee is widely expected to lift interest rates to four per cent from a current level of 3.75 per cent. 

City AM’s Shadow MPC, which is made up of economists from businesses and academia, voted 6-3 in favour of raising interest rates due to the risks of higher inflation emerging in the UK economy. 

Jack Meaning of Barclays, who participated in the mock committee independently of his organisation, said the Bank had to win “credibility” among the public in its battle to lower inflation to two per cent. 

The Bank of England currently forecasts inflation to rise above four per cent in the early parts of 2027. It is expected to revise its forecasts on the UK economy, jobs market and price growth on Thursday. 

Inflation has only hit the Bank’s target for a period of a few months in the last five years. Should inflation continue to rise above three three per cent, governor Andrew Bailey will have to write to Chancellor John Healey explaining why targets have been missed.