Service sector

UK services sector under pressure from soaring inflation

Business growth in the UK slowed sharply in May, a closely watched survey showed on Tuesday, as soaring inflation hit at home.

The S&P Global CIPS UK Services Business Activity PMI fell to 53.4 last month from 58.9 in April, the weakest headline since February 2021, when the country was in lockdown.

With the falls caused by the Covid-19 lockdowns eliminated, the month-on-month decline was the largest since the survey began in July 1996. The May reading was ahead of the flash estimate of 51.8.

Respondents said margins have been hit by inflation, energy, fuel and raw material costs, as well as ongoing wage pressures, leading to another sharp rise in average input prices. About 70% of respondents said their average costs had increased since April.

Worries about the economic outlook and heightened risk aversion also weighed on customer demand, respondents noted. As a result, growth expectations for the year ahead have fallen for the fourth consecutive month, to the lowest since October 2020.

Printing weighed heavily on the PMI composite output index, which fell to a 16-month low of 53.1 from 58.2 in April. The composite index is a weighted average of the manufacturing production index and the services index.

Tim Moore, Chief Economics Officer S&P Global Market Intelligencesaid: “The May data illustrates a worrying combination of slower growth and higher prices in the UK services sector.

“Service providers are increasingly concerned about the near-term business outlook, with price resistance among consumers and escalating cost of living pressures expected to dampen spending in the second half of 2022. “

Duncan Brock, Group Manager at Chartered Institute of Purchasing and Supplysaid: “While there was a glimmer of hope with export orders, which were not as stable as in previous months, Brexit customs restrictions and the war in Ukraine continued to hurt. further affect foreign confidence.

“The sudden drop in the headline index is cause for concern and has been reflected in sector optimism, which is the lowest since the peak of the pandemic in October 2020. Recession fears are growing. stronger as we realize that 2022 as a year of stable recovery has yet to materialize.”

Martin Beck, chief economic adviser to the EY Item Clubsaid: “All three PMI indices in May remained above the 50 ‘unchanged’ mark separating expansion from contraction. And the indices have been vulnerable in the past to respondent sentiment encroaching on what is supposed to be a measure of changes in production.

“But added to the drag from high inflation, a drop in health output now that free Covid-19 testing has ended and the distortions from the additional June bank holiday, the latest PMIs strengthen [our] expects GDP growth to slow significantly in the second quarter. They also illustrate the dilemma facing the Monetary Policy Committee as we approach the June interest rate decision.”