UK services sector costs hit five-month high

Will Green is news editor of Supply Management
4 October 2017

Input cost inflation in the UK services sector hit a five-month high in September, according to the latest PMI.

Higher operating costs were linked to rising food, energy and fuel bills, alongside increased prices for imported items and bigger staff salaries. In response there was a solid increase in the prices charged by service sector firms.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index rose slightly in September to 53.6, up on August’s 11-month low of 53.2 and against the no-change reading of 50.

Duncan Brock, director of customer relationships at CIPS, said: “The added weight of operating cost pressures continued with the biggest surge in prices for five months as food and fuel costs were on the rise and salary burdens increased.

“The time had also come for businesses to pass on these additional costs to their clients after months of squeezed margins.”

Relatively subdued domestic demand acted as a drag on activity growth, with the rise in new work the slowest for 13 months.

Firms also reported a decline in optimism, with confidence remaining close to its weakest since the end of 2011, though there was a sustained rise in service sector employment.

Brock said: “Whether there will be any significant bounceback towards the end of the year remains unlikely if the political landscape remains ambiguous and cost pressures continue to bear down on the sector.”

Chris Williamson, chief business economist at IHS Markit, said the three PMIs put the economy on course for growth of 0.3% in the third quarter.

“The surveys portray an economy struggling with the unwelcome combination of sluggish growth and rising prices, presenting a dilemma for policymakers,” he said.

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