Soaring inflation is having a crippling effect on business confidence in the UK’s service sector, according to the just-released IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) survey.
Confidence is now at just 53.4 – perilously close to the 50-point mark that indicates growth – and significantly down from its score of 58.9 in April.
The triple whammy of escalating energy, fuel and raw materials costs have been listed as contributory factors.
The survey also notes that increases in prices for customers also impacted demand. Cost inflation is now the steepest since this index began in July 1996.
As well as the data being at its weakest since February 2021, the report highlighted a slowdown in new order growth across the sector, with the rate of new business expansion dropping to its weakest since December last year.
PMI survey respondents flagged “subdued business and consumer confidence” due to concerns over the economic outlook.
Firms also said they were having to shoulder higher costs, while wages were also being pushed higher. Some 70% cent of surveyed service sector firms reported a rise in their average costs since the previous month.
On the back of this, experts from EY Item Club have said the prospect of a “significant slowdown” in gross domestic product growth in the second quarter remained “a likely one.”
Speaking to CityAM, Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “The sudden fall in the overall index is a cause for worry. Optimism is at the lowest since the height of the pandemic in October 2020 and recessionary fears are growing amid the realisation that 2022 has not been the year of stable recovery.”
Speaking to The Times, Tim Moore, economics director at S&P Global, which carried out the PMI survey, said: “Service providers are increasingly concerned about the near-term business outlook, with price resistance among consumers and escalating cost-of-living pressures set to dampen spending during the second half of 2022.”
The service sector data comes as the latest S&P Global/CIPS Purchasing Managers Index also revealed tumbling confidence in the wider business community.
This composite index, which also includes manufacturing as well as services, fell to 53.1 (down from 58.2 in April).
Tightening purse strings
Yesterday it was revealed UK shoppers cut spending by the largest amount since the Covid-19 lockdown of 2021.
The British Retail Consortium (BRC) said total retail spending was 1.1% lower than a year earlier, the biggest fall since January last year.
Bank of England bosses will now be under increased pressure at next week's meeting where they will vote on whether interest rates should go up again or not.