Services sector inflation hits 25-year high

5 July 2021

The UK services sector saw inflation rise to a 25-year high in June, according to the latest PMI.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index slipped slightly to 62.4, down from 62.9 in May but still representing the second-highest reading since October 2013.

This was accompanied by record rises in input costs and price inflation as supply failed to match demand.

Higher staff wages, increasing prices of raw materials and transportation charges have been pushing up costs, but strong demand for services means companies have been able to pass on higher costs to clients.

Capacity constraints and staff shortages have led to higher volumes of unfinished business and rises in backlogs of work were the steepest since the survey began in mid-1996.

Since pandemic-related lockdown restrictions have been rolled back, business and consumer spending has rocketed and this has led to the fastest rate of job creation for seven years within the service sector.

Duncan Brock, group director at CIPS, said: “This return to robust activity should have service providers relieved at the new opportunities after lockdown, but a modicum of doubt has crept in.

“With the sharpest escalation in price inflation for 25 years, it is no wonder businesses are concerned that they are paying substantially more for fuel, food and transport costs than they were a year ago,” he said.

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