Input and output prices in the services industry increased sharply in February despite a slight drop in growth in the sector.
The Markit/CIPS UK Services Purchasing Managers’ Index slipped to 56.7 in February, compared to 57.2 in January and against the 50 no-change mark.
However, new business increased at the sharpest pace for three months and, faced with higher backlogs and mild capacity pressures, firms recruited additional staff at the second fastest rate since the survey started in July 1996.
Average input cost inflation rose, with reports of suppliers being willing to increase their prices and higher wages being paid, while output charges increased for the third month in a row.
In terms of outlook, 50 per cent of firms predicted a rise in business activity over the next 12 months.
David Noble, group CEO, CIPS, said: “Sharper growth in new business has been driven by an upward swing of activity in both the domestic and international markets, with a mix of new business and higher levels of interest from existing customers showing an overall improvement.
“At a modest level, the sector has become a victim of its own success as the resultant rise in incoming new business has increased pressure on capacity capability: outstanding work has been rising now for the last couple of years. The protracted length of backlog accumulation indicates that the recovery may now be sustainable following the rapid growth of last year.”
Chris Williamson, chief economist at Markit, said: “The combination of relatively robust economic growth, the improving labour market and signs that wage growth will pick up in coming months suggests the Bank of England will come under increasing pressure to tighten policy later this year.”