The UK services sector saw activity improve last month, although growth in new orders slowed to a 16-month low as economic uncertainty and inflation are expected to have an impact on expenses.
The closely watched S&P Global/Cips UK services PMI survey scored 54.3 in June, having rebounded from a reading of 53.4 the previous month.
Any score above 50 indicates growth in the sector.
Businesses said activity was boosted by improving consumer spending on travel, leisure and events at the start of the summer.
However, the survey also highlighted reports that customers were spending less on discretionary items, largely due to strained household finances.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply (Cips), said: “The relative calm demonstrated by the slight increase in the overall figure belies the underlying picture of businesses weighed down by rising costs, struggling to build operating capacity and a shortage of raw materials caused by war and continued supply chain disruption.
About 68% of businesses said they saw an increase in their average costs in June, which is largely attributed to rising costs for energy, fuel and staff salaries.
Average prices charged by service providers also continued to rise at a rapid pace in June, although they were down slightly from May’s record high.
Rising inflation and concerns about the economic outlook led to hesitation about new orders in June.
Tim Moore, chief economics officer of S&P Global Market Intelligence, said: “The services sector remained in expansion mode in June, but persistently high inflation began to curb discretionary spending and negatively influence projections for the economy. demand in all areas.
“Growth in new orders was the weakest since the nationwide lockdown in early 2021, with survey respondents reporting hesitation from businesses and consumers in response to the uncertain economic outlook.”
Survey respondents also said they saw an increase in backlogs, which were attributed to staffing shortages, as a lack of candidates to fill vacancies continued to impact the company’s capacity.