Services sector 'jangled' by input price inflation

Will Green is news editor of Supply Management
3 October 2018

Input price inflation for the UK services sector hit a three-month high in September, according to the latest PMI.

Higher fuel prices and increased wage bills pushed up costs but relatively subdued demand conditions meant output charges rose at the slowest pace since June 2017.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index slipped to 53.9 in September, down on 54.3 in August and against the no-change reading of 50.

The survey indicated the fastest rise in employment numbers for seven months, which firms attributed to the need to alleviate stretched capacity and meet long-term business expansion plans. Anecdotal evidence suggested tight labour market conditions had led to difficulties filling vacancies and pushed up salaries.

Companies indicated new order growth eased slightly since August, with suggestions political uncertainty weighed on business confidence and was a factor in tighter budget setting among clients.

Duncan Brock, group director at CIPS, said: “This seesaw of good and bad news has the sector’s nerves jangled and frayed but optimism about the future improved a little from the previous month. Some firms are expecting the floodgate of new orders to be opened soon, but business confidence will remain at a low ebb in the last quarter if cost pressures deepen and negotiations around our EU departure remain unresolved.”

Chris Williamson, chief business economist at IHS Markit, said: “In a month during which oil prices spiked higher, it was no surprise to see cost pressures intensify, meaning consumer price inflation will have likely continued to run at a pace above the Bank of England’s 2% target in September, and will likely remain closer to 3% than 2% in coming months.

“The steady economic expansion and intensification of cost pressures will add to views that the next move in interest rates will be another hike.

“However, with Brexit uncertainty intensifying in recent weeks, any rise seems unlikely prior to the scheduled 29 March exit from the EU.”

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