Supply 'chokehold' slows services recovery

Will Green is news editor of Supply Management
5 October 2021

Half of UK services firms reported a rise in their average cost burden during September, according to the latest PMI.

Constrained supply, higher transport costs and rising salary payments contributed to the second-fastest rate of cost inflation since the survey began 25 years ago, exceeded only by that seen in July.

The percentage of firms reporting increases in selling prices charged jumped from 17% in August to 24% in September as rapid rises in fuel, energy, and staff costs were passed to customers.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index rose to 55.4 in September, up on 55 in August and above the 50 neutral reading, but down on May’s peak of 62.9.

Tim Moore, economics director at IHS Markit, said: “The supply chain crisis put a considerable brake on recovery in the UK service sector during September.”

Rising output was mostly attributed to robust confidence among clients and favourable business conditions at the end of pandemic restrictions.

However, those reporting a fall in activity commented on supply chain disruptions and staff shortages, particularly in the hospitality sector.

New order growth weakened for the fourth month running, while staff shortages and lengthy waits for supplier deliveries stymied efforts to clear backlogs of work.

Duncan Brock, group director at CIPS, said: “The chokehold on supply chain deliveries also made food, fuel and logistics much more expensive, which was a factor in dampening business optimism for activity in the next 12 months.

“As prices charged rose at their fastest rate since 1996, it seems the floodgates are open for higher inflation to wash through the UK economy and firms fear the growth this month may be eroded further by higher costs and shortages as we move towards the festive period.”

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