Growth in the UK’s dominant services sector has taken a knock after firms found they could “no longer fight” a surge in cost pressures, according to a closely-watched survey.
The IHS Markit/CIPS services purchasing managers’ index (PMI) for November showed companies raising prices at their fastest pace since February 2008.
It pointed to a “double whammy” effect on the sector as consumer spending declined, with a combination of rising prices and weak wage growth knocking confidence.
New order growth slowed as a result to leave the PMI showing a reading of of 53.8 in the month – down from October’s six-month high of 55.6.
Any reading above 50 indicates growth but November’s measure came in lower than economists had expected.
The survey’s findings suggest inflationary pressure remains in the sector, which accounts for almost 80% of output in the UK economy.
The Bank of England raised interest rates for the first time in more than a decade last month to help combat rising inflation, which is tipped to peak in the coming months.
The Consumer Prices Index measure currently stands at 3% – well above average wage growth – leaving the UK on course, some economists forecast, for the longest squeeze in living standards on record.
Much of the inflation in the economy has been caused by the collapse in the value of the pound since the Brexit vote.
That scenario has forced retailers and other firms to pass on higher import costs to their customers – hitting sales.
The British Retail Consortium said on Tuesday that even Black Friday deals failed to bolster business.
The PMI survey highlighted other pressures facing services firms.
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “Businesses could no longer fight against the tide of higher prices for food, fuel and salaries as input cost inflation remained close to its strongest for six years.”
“The level of new order growth lost some momentum, as inflation also ate away at household incomes for a double whammy effect on the UK population reluctant to spend”.
Howard Archer, chief economic adviser at the EY ITEM Club, said the UK remained on track to deliver economic growth of 0.4% in the final quarter of the year – matching there performance over the previous three months.
He added: “much will depend on how well the services sector performs and how much consumers spend over the crucial Christmas period”.