Cost burdens 'weighing down' UK services

Will Green is news editor of Supply Management
3 February 2017

Growth in the UK services sector slowed in January against a backdrop of intense inflationary pressures and a slackening in new business, according to the latest PMI.

Input price inflation rose to the highest since March 2011 while charges rose at a rate unchanged from December’s 68-month record. The rate of new business growth was slower than in December, though still the second-fastest since January 2016.

The Markit/CIPS UK Services Purchasing Managers’ Index slumped to 54.5 in January, down on December’s 17-month high of 56.2. A reading of 50 signals neither expansion nor contraction.

David Noble, group CEO, CIPS, said: “Supply chain managers reported that cost burdens were weighing down more heavily and impacting on their business for the seventh time in eight months.

“The triple whammy of rising fuel costs, salaries and higher import prices were keenly felt, and these rising costs may have also had an effect on the number of new jobs on offer, reflected in the rate of job creation, which was at a five-month low.”

Expectation regarding the level of activity in 12 months’ time was the strongest since May 2016, with positive sentiment linked to new business pipelines, product launches, low interest rates, a recovery in oil prices and greater stability and clarity around Brexit.

Chris Williamson, chief business economist at IHS Markit, said: “Higher costs are feeding through to increased selling prices, which will inevitably put upward pressure on consumer prices.

“While the robust start to the year adds some justification to the Bank of England’s improved outlook for 2017, the degree to which costs are rising threatens to test the tolerance of some policymakers in terms of their willingness to ‘look through’ what’s likely to be a marked upturn in inflation in 2017.”

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