Demand has been stifled by the fact that consumers have less disposable income due to the rising cost of living, and that businesses are attempting to reduce their spending due to inflation.
Since February of last year, when the majority of the country was still under COVID-19 restrictions, the service sector in the United Kingdom has grown at the slowest pace.
In July, the monthly S&P Global/CIPS UK services PMI survey decreased from 54.3 to 52.
Anything above 50 is considered positive, thus this indicates that the sector, which contributes to 80% of the UK’s GDP, was still expanding, albeit more slowly than the 53.3 economists had predicted.
The Bank of England is likely to boost interest rates on Thursday to bring inflation down from its 40-year peak.
Inflation plays a significant role in the cost-of-living problem currently gripping the majority of British families, according to the authors of the PMI survey, and this is having a ripple effect on the services sector, which is also battling rising costs.
Tim Moore, director of economics at S&P Global Market Intelligence, stated, “Reduced levels of discretionary consumer spending and efforts by firms to limit expenses due to rising inflation have combined to stifle demand.”
However, there were some encouraging advances.
Despite difficulties in locating qualified personnel and worries about inflation and rising interest rates, organizations in the services industry continue to hire vigorously.
A reduction in price inflation “cannot occur fast enough”
Input cost inflation slowed significantly from the previous month, possibly due to reduced commodity prices and a gradual easing of global supply bottlenecks, according to Mr. Moore.
“Any deceleration in inflationary pressures cannot come soon enough for service providers,” he added. “Many businesses are reporting an increase in customer resistance to price increases and a concomitant decline in demand.”
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, stated, “According to survey respondents, a period of relative stability in terms of supply chain interruption was also a plus.
However, as the drive to reclaim the heights of activity during the COVID bounce-back loses pace, the UK market will need to improve substantially to prevent a protracted summer of discontent.
