12172017

UK service sector growth slows while prices rise

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Firms in the UK’s key services sector raised prices at the fastest pace for nearly a decade last month as they faced higher costs for food, fuel and salaries, according to a survey.

The Markit/CIPS purchasing managers’ index (PMI) for services also said growth in the sector had slowed.

Growth in new orders cooled as consumers were hit by a “double whammy” of higher prices and weak wage growth.

The services sector accounts for nearly 80% of UK economic output.

The closely-watched PMI reading fell to 53.8 for the services sector in November, down from 55.6 the previous month. However, this was still above the 50 threshold for growth, which the sector has achieved for 16 consecutive months.

‘Disappointing portrait’

The report noted a “sharp and accelerated rise in prices” by firms.

The fall in the value of the pound has pushed up the price of imported goods for companies, and the sector has also been hit by changes to business rates and higher salaries after the launch of the National Living Wage.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply (CIPS), said: “November’s data painted a disappointing portrait of a sector struggling against Brexit-related uncertainty and a weaker economic outlook.

“Businesses could no longer fight against the tide of higher prices for food, fuel and salaries as input cost inflation remained close to its strongest for six years, and businesses passed these increases on to consumers at the fastest rate since February 2008.

“The level of new order growth lost some momentum, as inflation also ate away at household incomes for a double whammy effect on the UK population reluctant to spend,” he added.

However, while the PMI service sector survey was weaker than expected, similar studies of the manufacturing and construction sectors have indicated a better performance last month, with activity in the manufacturing sector growing at the fastest pace for four years.

Chris Williamson, chief business economist at IHS Markit, said the surveys as a whole indicated the economy would see “robust growth” in the final three months of the year of about 0.45%.

Howard Archer, chief economic adviser to the EY Item Club, also said the figures “suggest that the economy is maintaining a modestly improved performance in the fourth quarter”.

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