UK businesses report strongest month since February, PMI shows

LONDON, Oct 23 (Reuters) - British businesses are having their strongest month for activity since February as new orders grow and AI-related demand picks up, according to a survey published on Friday.

Adding to signs of the economy’s resilience to the energy price shock from the Iran war, the preliminary S&P Global UK Composite Purchasing Managers' Index rose to 53.1 in October, higher than any forecast among economists polled by Reuters and up from September's 52.0.

Companies took on extra workers for the first time since hiring was hit by a tax increase in former finance minister Rachel Reeves' 2024 budget, adding to other signs of a nascent recovery in the jobs market.

Manufacturers had their strongest increase in output in more than two years while services companies reported an acceleration in new orders.

Some firms cited a sales boost from AI investment spending and rising demand for technology services, S&P Global said.

Others held off on spending before next week's budget which could mean more growth soon if finance minister John Healey avoids measures that hurt business, Chris Williamson, S&P Global Market Intelligence's chief business economist, said.

Price pressures remained strong, "not only making a rate hike from the Bank of England at its upcoming policy meeting a near certainty but also likely shortening the odds of further rate hikes into 2027," he said.

Cost inflation for businesses was the strongest since June, especially among manufacturers, although prices charged by companies increased less sharply than in September.

The BoE, which is worried that the energy price surge might fuel broader inflation, is expected to raise interest rates for the first time in more than three years on November 5, after the next scheduled meeting of the Monetary Policy Committee. 

The PMI survey showed expectations among businesses for the year ahead edged up in October but remained weaker than the long-term average with companies worried about the wars in Ukraine and the Gulf as well as higher borrowing costs.

(Writing by William Schomberg; Editing by Toby Chopra)