Businesses are jacking up prices at the fastest rate on record to cancel out soaring costs caused by endemic supply chain breakdowns.
A closely watched index measuring UK services businesses’ activity hit 55.4 in September, up slightly from August’s six-month low 55.
A reading above 50 indicates a majority of firms reported growth.
Soaring oil prices triggered by a resurgence in global demand for commodities as nations push to get back to normal levels of economic activity is swelling firms cost bases.
Wholesale natural gas prices have also sky-rocketted on a combination of high demand, restricted supply caused by a fire a crucial artery of the UK’s gas network and Russia choking off flows of gas.
Oil prices hit a seven-year high yesterday, while Dutch TTF reached an all-time high of over €97 recently.
Tim Moore, economics director at IHS Markit, the firm that produced the survey, said: “The supply chain crisis put a considerable brake on recovery in the UK service sector during September.”
“The latest rise in average prices charged by UK service sector firms was the fastest in over 25 years of data collection, with many businesses reporting more frequent reviews of pricing due to escalating cost increases by suppliers.”
Supply chain snarl ups have left businesses struggling to get their hands on resources to deliver services, meaning they have lost out on income. New orders rose at their slowest pace since the end of the winter lockdown, IHS Markit said.
Large swathes of workers were leaving roles in the services industry, putting severe constraint on services firms to cope with persistently high demand after the end of Covid-19 restrictions. IHS Markit said services businesses also enacted redundancies in the lead up to the end of the furlough scheme last Thursday.
Scarce levels of candidates were driving services firms to hike pay in a bid to attract talent, adding further pressure to their cost base. A looming national insurance hike will also increase costs.
“Backlogs of work accumulated as service providers struggled to find candidates to fill vacancies,” Moore added.
The latest survey will provide further headaches for the Bank of England, which has bet on inflation proving transitory.
Latest ONS data shows it has already reached 3.2 per cent annually, while the Old Lady thinks it will top four per cent by the end of the year, over double its target.
A separate reading by IHS Markit measuring the Eurozone economy eased for the second month running, dropping to 56.2 in September, down from 59 in August.
“Inflationary trends moved higher in September, with input prices rising at the joint-fastest rate on record,” IHS Markit said.
Eurozone inflation soared to a 13-year high last month, according to Eurostat, the region’s official statistics agency.