Inflation pressure rise as growth slows in UK’s service sector

Inflation hit its highest point for 25 years, according to a new survey.

August Graham
Wednesday 04 August 2021 10:09 BST
The cost of doing business is increasing rapidly for UK companies. (Dominic Lipinski/PA)
The cost of doing business is increasing rapidly for UK companies. (Dominic Lipinski/PA) (PA Wire)

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Growth among UK service companies slowed to its lowest levels since March but remains strong, according to an influential survey.

New figures show that the economy is still rebounding, but is losing some of the momentum it had in the early days after lockdowns lifted.

The sector scored a strong 59.6 in July in the IHS Markit CIPS UK Services PMI report which surveys business leaders around the country.

It was lower than June’s 62.4, but economists had feared worse still, with predictions setting the score at 57.8.

We suspect the best of the post-pandemic recovery could be behind us.

Duncan Brock

“More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we’ve already seen the peak phase of pent-up consumer spending,” said Tim Moore economics director at IHS Markit.

But this spending was also hit by the hundreds of thousands of Brits who were forced to stay at home after being in close contact with someone who later tested positive for Covid-19, the survey found.

Costs have also been shooting up across for many businesses. On Tuesday builders’ merchant Travis Perkins said that the costs it pays for raw materials and other items rose by 7% in its most recent three-month period.

The PMI survey found that wages were being pushed up, fuel prices were increasing and transport bills were also rising.

Inflation has not been this high since the monthly studies started a quarter of a century ago.

As a result the companies that were surveyed increased what they charged for their services at the fastest rate in 25 years.

“We suspect the best of the post-pandemic recovery could be behind us, especially if higher leisure and hospitality costs diminish appetite for consumer spending,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

The survey revealed that the UK Composite Output Index fell from 62.2 in June to 59.2 in July, it’s lowest level in four months.

This measure is an average, weighted for size, of the services and manufacturing sectors.

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