UK Services Sector Growth Slows Amid Rising Fuel and Energy Costs

The UK's services sector experienced a slowdown in growth during September, though firms continued to raise prices at the fastest pace since May due to rising fuel and energy costs. The S&P Global UK services PMI index registered a reading of 52.1, down slightly from 52.5 in August but still above the 50.0 threshold indicating growth. This marked the third consecutive month of business activity expansion, despite the deceleration.

Companies surveyed cited surging fuel prices, driven by the Middle East conflict, as a major factor behind increased input cost inflation. Higher staff wages also contributed to rising business expenses, prompting firms to pass these costs onto customers. Job cuts in the sector persisted for the 24th month, though the rate of reduction slowed to its lowest in nearly a year. Some businesses reported using new technologies, including artificial intelligence (AI), to reduce the need for hiring replacements.

The average price of diesel hit a record high of £2 per litre last week, while petrol prices increased by around 42p per litre since the start of the Iran war. These rising costs have made transportation more expensive for businesses and disrupted supply chains. Analysts warned that these pressures could push inflation above 4% early next year, potentially prompting the Bank of England to raise interest rates later this year.

Tim Moore, economics director for S&P Global Market Intelligence, noted that the sharp increase in prices charged by service sector companies signaled a reversal of the slowdown seen earlier in 2026. Thomas Pugh, chief economist for RSM UK, expressed concern that the next six months would be challenging, as rising energy prices could squeeze household incomes and impact business operating costs.