UK Services Sector Growth Slows as Firms Raise Prices to Combat Fuel Costs

The UK services sector experienced a slowdown in September as firms raised prices at the fastest pace since May to counter surging fuel and energy costs. The S&P Global UK Services PMI Business Activity Index registered 52.1, down from 52.5 in August but slightly above the flash estimate of 51.7. While the reading indicates expansion, the deceleration suggests the sector is losing momentum due to intensifying inflationary pressures.

The survey of around 650 service sector companies revealed a sharp increase in operating expenses driven by higher fuel prices, rising energy tariffs, and increased staff remuneration. Firms passed these costs onto consumers, resulting in the steepest price hike since May. This complicates the monetary policy outlook for the Bank of England, as cost-driven inflation persists in consumer-facing industries.

Despite pricing pressures, the survey highlighted a shift in the labour market, with the 24th consecutive month of job cuts but at the slowest rate in nearly a year. Companies cited the adoption of new technologies, including artificial intelligence and automated customer service platforms, as reasons for not replacing workers. This structural shift suggests productivity gains through digital transformation are offsetting the need for headcount expansion.

The broader economic implications include concerns about corporate profitability and consumer resilience. With households already stretched by interest rate hikes and utility bills, further price increases in services could suppress discretionary spending. Market analysts suggest the Bank of England will remain cautious with interest rate adjustments due to persistent services inflation.