UK services growth hits 11-month low as costs surge
UK services growth hit an 11-month low in March as costs rose at the fastest rate since 2021. Firms cited the Iran war as a drag on demand and optimism.
Businesses within the United Kingdom services sector have reported a sharp escalation in operating costs, marking the most significant monthly increase since 2021. According to the latest industry survey from S&P GLOBAL INC, the surge is primarily attributed to rising energy and transportation prices, which have been intensified by the geopolitical tensions involving Iran. The services Purchasing Managers Index (PMI) dropped to 50.5 in March from 53.9 in February, a steeper decline than initially estimated and the lowest reading in 11 months.
The data indicates that input prices paid by British service firms reached a near one-year high, with the index climbing to 68.4 in March from 63.1 the previous month. This jump represents the largest month-on-month increase since the spring of 2021. Approximately 40% of survey respondents noted an uptick in costs, driven by suppliers passing on higher expenses for raw materials and shipping. Tim Moore, economics director at S&P Global Market Intelligence, observed that the conflict in the Middle East has significantly dampened business activity.
UK service providers experienced a marked slowdown in output growth in March as the war in the Middle East encouraged greater risk aversion among clients and postponed investment decisions, Moore said.
The slowdown is also visible in the export sector, where new business fell to 46.3 from 50.3, marking the fastest contraction in nearly a year. This is the first time the export index has dropped below the 50.0 threshold since November. Bank of England Governor Andrew Bailey recently addressed the challenges facing these businesses regarding their ability to adjust prices in response to these cost pressures.
Bank of England Governor Andrew Bailey told Reuters last week that firms had limited pricing power to pass on cost increases although some pass-through of higher energy costs was likely.
Business sentiment has reached its lowest level since June 2024. Service providers expressed growing concerns regarding the potential duration of the conflict and its broader impact on global supply chains, inflation, and borrowing costs. While the rate of job cuts slowed to a four-month low, the overall decline in new orders was the most pronounced since July, reflecting a broader retreat in market confidence.
