UK service firms face further wage rises but consumer demand remains ‘resilient’

UK service sector firms have blamed higher wages for further prices rises as fresh data showed the sector continued to grow last month.

The S&P Global/CIPS UK services PMI survey showed a reading of 55.2 for last month, slipping from 55.9 in April, which had been the strongest showing for a year.

Any reading above 50 is considered growth, below that means the sector is shrinking.

It was marginally ahead of the predictions of economists, who had forecast a 55.1 reading for the month.

The report said continued growth was “fuelled by resilient demand for consumer and technology services”, while households also switched some spending on goods to services.

John Glen, chief economist at the Chartered Institute of Procurement and Supply (CIPS), said: “The service sector was running in the opposite direction to the declining manufacturing sector in the UK, powering ahead with another strong rise in new orders including work from overseas and rising tourist numbers.”

Firms reported “robust sales pipelines” and a greater willingness to spend from customers, despite continued economic uncertainty.

Export sales also improved for the month, with survey respondents linking this to increased international visitor numbers.

However, the report also said that some service firms reported that challenges in replacing voluntary leavers among their staff helped to contribute to higher wages and squeezed margins.

The data “signalled a rapid increase in average cost burdens” across the sector as a result, with input price inflation edging up to a three-month high.

Tim Moore, economics director at S&P Global Market Intelligence, said: “Intense wage pressures continued across the service economy, despite a moderation in employment growth.

“Higher salary payments more than offset lower fuel costs, which meant that overall input price inflation edged up to its strongest for three months in May.

“Average prices charged by service sector companies nonetheless increased at the second-weakest pace since August 2021 amid some reports of greater price resistance among clients.”