Cost increases for UK services stoke inflation fears

Will Green is news editor of Supply Management
3 March 2017

Input prices for the UK services sector rose at their steepest pace since 2008, according to the latest PMI.

This in turn led to the largest increase in prices charged by service providers for almost eight-and-a-half years.

Cost increases were driven by supplier price increases in response to the weak pound. Increased transportation costs, rising energy prices and higher salary payments were also reported.

Chris Williamson, chief business economist at IHS Markit, said: “The ongoing steep upturn in costs suggests that consumer price inflation has significantly further to rise, adding to our belief that inflation will breach 3% over the course of the next year.”

The Markit/CIPS UK Services Purchasing Managers’ Index slipped to 53.3 in February, down on 54.5 in January and against the neutral reading of 50.

Higher levels of business activity were attributed to the resilient economist backdrop and a solid rise in new work. Nonetheless there were also reports that squeezed consumer finances and increased operating costs had acted as a brake on growth.

However, there was a strong degree of positive sentiment regarding the year ahead with confidence levels little changed from January’s post referendum peak.

Duncan Brock, director of customer relationships at CIPS, said: “The UK service sector continued to lose momentum in February, which causes concern that the main driver of growth in the UK economy is losing some vitality. Though still in positive territory, business activity expanded at the slowest pace since September 2016, largely reflecting a weaker upturn in new work.”

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