Output in the sector – which makes up the largest part of the economy and includes pubs, restaurants, banks and tourism – grew at the slowest pace in 18 months.
Researchers from S&P Global and the Chartered Institute of Procurement and Supply (Cips) said cost pressures for businesses were “extremely high” – and highlighted soaring energy bills.
Companies are also suffering from the fact that households are reining in their spending.
S&P and Cips use an index to measure the sector’s output – any reading above 50 indicates it is growing. Last month’s result of 50.9 was down sharply from July’s 52.6.
Chris Williamson, chief economist at S&P, explained: “Demand for consumer-facing services such as restaurants, hotels, travel and other leisure activities is collapsing under the weight of the cost of living crisis.” .
“Demand for business services is also under pressure amid concerns over rising costs and a darkening economic outlook. Financial services firms meanwhile report subdued trading amid recent interest rate hikes. interest.”
He added: “Deteriorating trends in order books suggest that the new Prime Minister will have to deal with an economy facing a heightened risk of recession, a deteriorating labor market and persistently high price pressures. related to soaring energy costs.”
The Bank of England last month predicted a recession from the fourth quarter of this year, reversed by soaring petrol prices.
He also said: “Real after-tax household income is expected to fall sharply in 2022 and 2023, while consumption growth will turn negative.”
Chief economist Dr John Glen of Cips said yesterday: ‘Input costs have continued to rise at a rapid pace as service companies have no choice but to pass the pain on to customers and consumers.”
“While port disruptions, Brexit red tape and shortages continue to play a role in inflation, the sector is relatively helpless in the face of ever-increasing energy bills.”