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UK services sector growth drops to 17-month low

services sector  Tower Bridge is seen in the background as workers cross London Bridge during the morning rush hour in London, Britain, September 8, 2021. REUTERS/Toby Melville
The UK services sector continued to hire strongly. Photo: Toby Melville/Reuters

UK services sector activity growth crawled to its slowest pace since early 2021, when COVID forced most of the country into lockdown.

The monthly S&P Global/CIPS UK services PMI survey hit 52.6 in July, down from 54.3 a month earlier.

It still shows growth in the sector — any reading above 50 is positive — but analysts had expected better.

According to a consensus supplied by Pantheon Macroeconomics, the score was predicted to be 53.3.

Order books remained subdued, and confidence about the future remained at an historically subdued level.

Read more: UK cost of full tank of petrol falls £5 in July

"Reduced levels of discretionary consumer spending and efforts by businesses to contain expenses due to escalating inflation have combined to squeeze demand," Tim Moore, S&P Global Market Intelligence's economics director, said.

Costs, while still growing quickly by historical standards, rose by the least since December and the increase in prices charged by firms was the smallest in five months.

"Any slowdown in inflationary pressures can't come soon enough for service providers, with many firms reporting growing customer resistance to price hikes and a subsequent downturn in demand," Moore added.

Inflation and the cost of living squeeze increased economic uncertainty for the sector, the report found. As a result, firms struggled to attract new business.

Meanwhile, companies continued to face higher costs and to charge their customers more.

Fuel and utility bills pushed up costs for businesses both directly and indirectly, despite inflation easing from recent records in May and June.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “A period of relative stability in terms of supply chain disruption was also a plus point, according to survey respondents.

Read more: Bank of England set to raise UK interest rates to 1.75%

“However, after the scramble to regain the heights in activity during the COVID bounceback loses momentum, the UK marketplace will have to improve much more to avoid a prolonged summer of discontent.”

Firms continued to hire strongly even as they struggled to find suitable candidates and worried about inflation and higher interest rates. New business improved only slightly from a 16-month low in June.

The combination of a slowing economy and price growth at a 40-year high is raising the stakes for the Bank of England, which will announce its next interest rate decision on Thursday.

Watch: How does inflation affect interest rates?