Service sector

Soaring inflation leads to a sharp slowdown in the UK services sector

Britain’s services sector posted its worst performance in more than a year last month as soaring inflation weighed on consumer demand.

The closely watched IHS Markit/CIPS UK services PMI survey came in at 53.4 in May, after falling to 58.9 in April.

Any score above 50 indicates growth in the sector.

However, it was the weakest figure since February 2021 as companies pointed to “weak business and consumer confidence” due to worries about the economic outlook.

Tim Moore, chief economics officer at S&P Global Market, said: “The May data illustrates a worrying combination of slower growth and higher prices in the UK services sector.

“The latest wave of input cost inflation was the strongest since this index began in July 1996, while the monthly loss of momentum for expanding business activity was a survey record in outside of lockdown periods.”

Service companies surveyed have witnessed “escalating costs for energy, fuel and raw materials”, while wages have also risen.

About 70% of businesses reported an increase in their average costs since the previous month.

The May data also highlighted a record increase in prices charged by service providers to customers, which they said affected demand.

In addition, the report signals a slowdown in new order growth in the sector, with the rate of new business expansion falling to its lowest level since December last year.

Nevertheless, companies also reported another robust improvement in the workforce for the month.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: ‘One bright spot was the high employment levels.

“Job seekers always had a choice of group in terms of roles and salaries demanded, but as capacity levels are reached and new order gaps emerge, the window of opportunity begins to close. .

“The sharp drop in the overall index is concerning and was reflected in sector optimism, which was at its lowest since the peak of the pandemic in October 2020.

“Recession fears grow and deepen as we realize that 2022, as a year of steady recovery, has yet to materialize.”