Service sector growth slows as consumers turn cautious

GROWTH in the UK’s key services sector slowed in February to its weakest pace since last September, while companies hiked prices at the fastest rate since September 2008 as sterling’s post-Brexit vote weakness stoked cost pressures.

The slowdown was revealed yesterday in a survey from the Chartered Institute of Procurement and Supply (CIPS). Services firms noted more cautious spending patterns among consumers, and squeezed household finances. CIPS’s services business activity index fell from 54.5 in January to 53.3 in February on a seasonallyadjusted basis, signalling the weakest expansion since September.

The survey shows services companies’ costs rose last month at the fastest pace in eight-and-a-half years.

Highlighting the part that sterling weakness is playing in fuelling inflationary pressures, CIPS said: “Supplier price increases in response to exchange rate depreciation were the most commonly cited reason provided by panel members during February.”

As services companies attempted to pass on their increased costs to customers, their average prices charged rose at the fastest pace since September 2008.

Chris Williamson, chief business economist at survey compiler IHS Markit, said: “A further slowdown in UK business activity growth in February adds to evidence that the economy has lost momentum... The PMI [purchasing managers’ index] surveys are collectively signalling GDP [gross domestic product] growth of 0.4 per cent in the first quarter.

“Weaker consumer spending was a key cause of slower service sector growth, suggesting household budgets are starting to crack under the strain of higher prices and weak wage growth.”