'Fearsome' inflation and supply chain pressures weigh on UK's crucial services sector

Growth in Britain’s crucial services sector cooled last month and industry sentiment eased to a 12-month low amid ongoing staff shortages and supply chain pressures.

However, the latest industry snapshot also showed that the sector has continued its recovery, with firms reporting the fastest rise in new business for the past five months.

The closely-watched IHS Markit/Cips UK services PMI survey recorded a reading of 58.5 last month, dipping from 59.1 in October. Any score above 50 denotes growth.

Surveyed companies said consumer spending has not yet been affected by inflationary pressures or concerns over recent supply issues. It added that new orders rebounded as new trade from abroad increased at its fastest pace since 2017.

The sprawling services sector accounts for about four-fifths of the UK economy and includes the likes of hospitality businesses. Picture: Lisa Ferguson

However, business expectations have been held back somewhat by supply issues, as “the degree of optimism about business activity growth was the lowest for 12 months”.

The report also noted that the prices charged by service sector firms rose at a survey record pace in November.

Meanwhile, companies continued to indicate robust demand for staff in November, with employment numbers rising for the ninth consecutive month.

Ulas Akincilar, head of trading at online trading provider Infinox, said: “Britain’s service sector engine room is running hot.

“Levels of new business are rising at their fastest pace for five months, and output remains strong. At this pace the sector, which accounts for four fifths of the UK economy, will close out the year with a bumper quarter.

“But that heat is also producing fearsome inflationary pressure.”

Simon Lister at the financial comparison website InvestingReviews.co.uk added: “On the surface, the services sector is holding up, but under it there is a multiplicity of red flags.

“For now, people and businesses are spending, but the million dollar question is how long will it last?

“The paradox at the heart of this latest services PMI, namely strong business and consumer spending at the same time as surging prices, has the potential to send markets either way as they digest the data.

“It's the ultimate head scratcher, and contains signals that the [Bank of England’s] monetary policy committee cannot ignore ahead of its next rate decision.”

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