UK services sector growth slows as fuel costs drive price hikes

The UK’s services sector saw slower growth in September, with firms raising prices at the fastest pace since May due to surging fuel and energy costs, according to a new survey. The S&P Global UK services PMI index fell to 52.1 from 52.5 in August, marking the third consecutive month of business activity growth. Readings above 50 indicate expansion, while those below signal contraction. The latest figure exceeded an earlier estimate of 51.7.

Companies reported that higher fuel prices and increased staff wages pushed up business costs, leading them to raise customer prices at the sharpest rate since May. The survey also highlighted two years of continuous job cuts in the sector, though at the slowest pace in nearly a year. Firms adopting new technologies, including artificial intelligence (AI), cited it as a reason for not replacing departing workers.

Tim Moore, economics director for S&P Global Market Intelligence, attributed the cost inflation to surging fuel prices driven by the Middle East conflict. The average price of diesel hit a record high of £2 per litre last week, while petrol prices rose by 42p per litre since the start of the Iran war. Businesses noted increased transportation and supply chain costs due to higher oil and gas prices and international shipping disruptions.

Thomas Pugh, chief economist for RSM UK, warned that rising energy prices could push inflation above 4% early next year, squeezing household incomes and potentially prompting the Bank of England to raise interest rates later this year. He described the next six months as ‘more challenging,’ emphasizing the pressure on prices across the sector, which could worry the Monetary Policy Committee and strengthen the case for rate hikes.