Services sector grows but prices on the rise

Will Green is news editor of Supply Management
4 January 2018

Growth in the UK services sector edged upwards in December as firms reported the fastest rise in operating expenses for three months.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index showed a marked increase in average prices charged by service providers as they responded to higher transportation costs, staff salaries and utility bills.

Duncan Brock, director of customer relationships at CIPS, said: “Businesses were paying more for food, fuel and higher salaries, trying to encourage talented staff in a landscape of tight labour market conditions and difficulties replacing skilled employees.

“To balance the books, prices charged to consumers were on the rise again in December. On the other hand, some firms reported promotional discounting to counteract reductions from competitors and also take control of their own success through greater marketing efforts.”

The PMI index registered 54.2 in December, up on 53.8 in November and against the no-change reading of 50. Higher levels of business activity have been recorded for 17 months, though firms noted that Brexit-related uncertainty continued to hold back client spending.

Confidence picked up to a seven-month high, with around 43% of respondents expecting a rise in business activity during 2018, linked to new product launches and hopes of increased demand from stronger global economic conditions.

Chris Williamson, chief business economist at IHS Markit, said the increase in growth included a “health warning about the sustainability of the upturn”.

“The likelihood is that the resilience of the economy will be increasingly tested by the prevailing uncertainty and anxiety about the future as we move into 2018, suggesting growth will slow in the absence of greater clarity and reassurance regarding a favourable Brexit outcome.”

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