Inflation hits UK service industry

·Finance Reporter, Yahoo Finance UK
·2-min read
 UK services  Tibard employees make NHS uniforms at their factory in Dukinfield as the spread of the coronavirus disease (COVID-19) continues, Dukinfield, Britain, April 6, 2020. REUTERS/Molly Darlington
UK services firms remain worried about soaring costs and the risk of a recession. Photo: Molly Darlington/Reuters

Growth among UK services slowed sharply in May to its weakest since early 2021 amid fears about soaring costs and the risk of a recession, according to S&P Global.

The IHS Markit/CIPS UK services PMI survey – spanning services and manufacturing firms – scored 53.4 in May, tumbling from a 58.9 reading in April.

Nevertheless, any score above 50 shows growth in the sector.

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It was also the weakest headline index reading since February 2021, which S&P said mostly reflected subdued business and consumer confidence, with worries about the economic outlook also contributing to softer demand patterns in May.

Many firms reported that worries about the economic outlook and heightened risk aversion hit customer demand. But the hospitality sector had a strong month, helped by the easing of pandemic restrictions.

“May data illustrate a worrying combination of slower growth and higher prices across the UK service sector,” said Tim Moore, economics director at S&P Global Market Intelligence.

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

“There were bright spots in customer-facing parts of the economy during May, buoyed by a rapid recovery in consumer spending on travel, leisure and entertainment.

“However, hospitality businesses widely reported constraints on recovery from a lack of candidates to fill vacancies and difficulties meeting demand due to ongoing global supply chain disruption.”

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Moore said service providers feared consumers would be unwilling to pay higher prices, pushing down spending later this year.

"Service providers are increasingly concerned about the near-term business outlook, with price resistance among consumers and escalating cost of living pressures set to dampen spending during the second half of 2022. Growth expectations have dropped in each month since the invasion of Ukraine and are now the weakest since October 2020,” he added.

Watch: How does inflation affect interest rates?

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