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UK service sector hikes prices and sees supply chain hit to new orders

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UK service sector firms hiked prices at a record pace last month as they battled against surging cost pressures and a slump in new orders due to supply and staff shortages, new figures have shown.

The closely watched IHS Markit/CIPS UK Services PMI survey revealed that new order growth weakened for the fourth month in a row, with new business rising at the slowest pace for six months.

Overall service sector output was better than expected, with the report showing a reading of 55.4 in September, which is up from the six-month low of 55 recorded in August.

Economists had been expecting a reading of 54.6.

The report laid bare the pressures facing the sector, with the data showing firms resorting to passing on costs to customers, with the steepest rise in prices for services since the survey records began.

Supply chain difficulties and staff shortages also saw a rising backlog of work in the sector, with unfinished business now having built up for seven months straight – the longest run since 2015.

Tim Moore, economics director at survey compiler IHS Markit, said: “The supply chain crisis put a considerable brake on recovery in the UK service sector during September.

“Survey respondents widely noted that shortages of staff, raw materials and transport had resulted in lost business opportunities.

“Consequently, new orders expanded at the slowest pace since the end of the winter lockdown, while backlogs of work accumulated as service providers struggled to find candidates to fill vacancies.”

He added that the cost pressures rose again last month due to supply chain issues and staff wage increases, even before the full impact of the recent fuel crisis and energy tariff hikes.

“Tight constraints on business capacity and rampant supply chain uncertainty meant that service providers have become more willing to pass on higher costs to customers,” Mr Moore cautioned.

It raises the spectre of yet more price rises for consumers over the coming months, with inflation already having seen a record jump to 3.2% in August, which is the highest level for nearly a decade.

There are mounting fears over price rises and shortages of food and items during the all-important Christmas season.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “As prices charged rose at their fastest rate since 1996, it seems the floodgates are open for higher inflation to wash through the UK economy and firms fear the growth this month may be eroded further by higher costs and shortages as we move towards the festive period.”

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