The UK service sector saw a continued upturn in business activity in September - though the rate of expansion edged up only slightly since August, and was weaker than average in the first half of the year.
The IHS Markit/CIPS Services PMI® Business Activity Index New revealed that subdued domestic demand was dragging on activity growth, with the latest rise in incoming new work the slowest for 13 months.
Service providers remained under pressure from rising operating expenses, which contributed to the fastest rate of prices charged inflation since April.
Survey respondents cited a healthy labour market and resilient consumer spending, but there were also worries the business outlook had acted as a growth headwind.
Subdued business-to-business sales and delayed decision-making on large projects in response to Brexit-related uncertainty led to overall new business volumes expanding at the slowest pace since August 2016.
Service sector firms also reported a decline in optimism towards their year ahead growth prospects, with confidence close to its weakest since the end of 2011.
The data indicated a sustained rise in service sector employment, with a number of firms having difficulty recruiting suitably skilled staff.
Input cost inflation reached a seven-month high and remained among the strongest seen since early 2011.
Higher operating expenses were linked to rising food, energy and fuel bills, alongside increased prices for imported items and greater staff salaries.
Chris Williamson, chief business economist at HIS Markit, which compiles the survey: “The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric and hike interest rates.”
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “Strong signals indicate a stagnation trend is developing in the sector. With a subdued rate of expansion in September, UK services maintained a lower than long-term average performance this month.
“Where consumers recovered a little from their spending hesitation last month, it was the turn of businesses to be spooked into inactivity, exerting greater scrutiny over new projects and long-term spending plans. The pressure of Brexit and resulting uncertainty were at the heart of this indecision.
“Whether there will be any significant bounce back towards the end of the year remains unlikely if the political landscape remains ambiguous and cost pressures continue to bear down on the sector.”
