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Services sector slowdown as inflation starts to bite

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April’s slowdown in the services sector was attributed to both an increase in prices and the Government’s austerity cuts

April’s slowdown in the services sector was attributed to both an increase in prices and the Government’s austerity cuts

April’s slowdown in the services sector was attributed to both an increase in prices and the Government’s austerity cuts

Growth in the powerhouse UK services sector slowed in April as companies increased their prices at the fastest rate for two-and-a-half years.

Businesses passed on rising costs of oil and other commodities to customers and said more price increases are on the way as their bills continue to rise.

With consumer spending power being weakened by inflation, the Markit/CIPS survey, where a reading of above 50 indicates growth, showed activity had slowed to 54.3 in April - down 2.8% from 57.1 in March, the second largest fall since October 2008.

The results follow similar slowdowns for the manufacturing and construction industries and indicate that any economic recovery is struggling to gather pace.

April's slowdown in the services sector, which accounts for about 75% of GDP, was also attributed to the Government's austerity cuts, as public sector departments slowed their spending. In the previous month, government departments had boosted the economy as they used up their budgets before the end of the financial year.

Businesses also reacted to high inflation by cutting costs, which included a return to reducing staff numbers. Confidence in future prospects dropped to its lowest level of 2011 as businesses fretted over how the Government's cuts would affect the economy.

However, on a more optimistic note, sales and new business rose at their fastest rate for a year.

David Noble, chief executive of CIPS, said: "The main source of anxiety is likely to be the sharpest output price inflation for two-and-a-half years.

"This is an inevitable symptom of rising input costs and decreasing profitability over the past few months, and will start to cause concern if not reined in."

The rate of decline in the index in April surprised economists, who had expected it to fall to 56.

Blerina Uruci, an economist at Barclays Capital, said: "The fall is to some extent a pull-back after the sharp and unexpected increase reported in March."

But she added that the weakening in confidence was discomforting because it indicated that the outlook for the sector remains subdued, consistent with expectations for a waning recovery.

2.8%

The fall in growth in the UK services sector from March to April this year


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