UK services firms recorded a third consecutive month of expanding output in September, but the pace of rising business costs accelerated. Input-cost inflation reached its strongest level since June, while a measure of prices charged by service providers climbed to its highest since May.
The headline services activity index stood at 52.1, down from 52.5 in August. The reading remained above 50, the dividing line between expansion and contraction in this survey, indicating that activity was still growing overall. It was, however, the joint-weakest growth reading since June. A PMI reading of 52.1 does not mean output rose by 2.1 per cent: it is a diffusion index reflecting the balance of businesses reporting improvement against those reporting deterioration.
Fuel and wage costs put pressure on firms
Higher fuel prices and wage bills were prominent contributors to the September cost picture. More than a third of the businesses covered reported that their average cost burdens had increased. The acceleration reverses some of the easing seen through the middle of the year and highlights how operating expenses can rise even while demand and output remain in expansion territory.
A gauge of prices charged by services companies also rose more quickly, reaching its highest level since May. That signals that more firms were increasing the prices they bill customers, but it is not a direct measure of the change in every household-facing service price. Nor does an increase in the index establish how much of the additional cost was passed on, or how much was absorbed by businesses.
For customers, the distinction matters. A rise in firms’ input costs can influence decisions on fees and prices, but firms do not all respond in the same way or at the same time. The September readings point to renewed pressure in the business chain; they do not, by themselves, quantify the effect on the overall cost of living.
Growth continues alongside a long employment decline
Activity growth was accompanied by a continued fall in services employment. Staffing levels declined for a 24th consecutive month, the longest uninterrupted period of contraction in the series, which dates back to 1997. The combination of expanding activity and falling employment underlines that a positive headline reading does not mean every part of the sector is strengthening.
Businesses’ expectations for the year ahead edged down from August’s seven-month high. Weak demand and cost pressures weighed on confidence. The shift suggests that firms remained cautious about the outlook even as current output continued to increase.
A broader composite measure covering services and manufacturing eased to 52.0 from 52.5 in August. It remained above the 50-point threshold, so it still indicated private-sector expansion, but marked its weakest reading since June. The parallel movement in the headline measures points to slower momentum across the combined private sector rather than a return to contraction.
Taken together, September’s indicators describe an economy with continuing, but modest, services growth and faster cost inflation. Higher fuel and wage expenses are showing up alongside a firmer pace of price increases charged by firms, while employment and confidence remain weaker. The data are a snapshot of reported business conditions during the month, not a forecast of the next move in inflation or interest rates. The balance between rising costs, customer demand and firms’ ability to absorb or pass on expenses will remain central to how the sector develops.
