Confidence among UK service sector bosses fell to its lowest level in 18 months as rising prices slowed the sector’s recovery, new data shows.
The decline in confidence is driven by rising costs of products and services in the sector which includes retail, hospitality and leisure services, as well as belt-tightening customers, according to the index. S&P Global/CIPS business activity.
The report recorded a Purchasing Managers Index (PMI) of 58.9 for the sector in April, with anything above 50 considered a growth sector.
But the growth was much slower than in March, when the score was 62.6.
Bosses have reported that inflation is hitting businesses hard, including rising energy, fuel and wage costs – with many of those costs being passed on to customers.
The survey found that the higher cost of doing business and the war in Ukraine limited the pace of expansion last month.
There was evidence that businesses continued to benefit from the lifting of Covid-19 restrictions, particularly with the return of international travel.
The pass-through of these cost pressures to the rates charged to customers means that the period of rapid inflation is clearly set to continue.
Employment levels also continued to rise, marking an unprecedented 14-month streak for employment growth in the sector.
Andrew Harker, chief economics officer of S&P Global, which compiles the survey, said: “The twin headwinds of the cost of living crisis and the war in Ukraine began to bite into the UK services sector in April, as evidenced by a sharp slowdown in new orders growth to the lowest of the year so far.
“Worryingly, businesses appear to be expecting the impacts to last longer, with business confidence falling to a year-and-a-half low.
“Indeed, cost pressures show little sign of easing, with inflation accelerating even in April to the highest in nearly 26 years of data collection.
“The pass-through of these cost pressures to fees charged to customers means that the period of rapid inflation is clearly set to continue.”
Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “Although the overall index remained in growth territory, the services sector shows signs of boiling over as the effects trickle down. The drop from the highest prices for 26 years has impacted orders and business sentiment.
“New contract wins grew at the slowest pace so far this year as fears about the economy began to cripple customer confidence, and service providers reported the weakest optimism since 2020 in the height of the pandemic.
“The invasion of Ukraine has exacerbated the problem of disruption and rising costs, with driver shortages, clean border access and higher wages and energy hikes adding to these hurdles. .
“Businesses have been forced to pass costs on to consumers at a similar rate, which could reduce demand for hospitality and services in the months ahead.”