The Markit/CIPS UK Services Purchasing Managers' Index (PMI) fell to 53.3 (54.5 in January) as service sector growth eased to a five-month low in February, with business activity expanding at its slowest pace since September 2016.
The slowdown mainly reflected a softer pace of new business growth, indicating that the more cautious consumer spending is taking its toll on businesses.
Business confidence does however remain strong, with service providers indicating that optimism was little-changed from the post-referendum high recorded at the start of this year.
Higher business costs were the main negative development in February, with average input prices rising at the steepest pace since August 2008. This led to the largest increase in prices charged by service providers for almost eight-and-a-half years.
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, comments: “Exchange rate depreciation, rising energy costs and higher wage bills all had a profound impact on prices charged inflation, which was the highest since September 2008. Cautious consumer spending had a moderating impact on pricing power, but firms were still compelled to increase their charges to customers in anticipation of more cost pressures to come. This will have policymakers wondering whether consumers can continue spending as Brexit negotiations approach, or whether they rein back further in response to squeezed household budgets.
“In spite of all this, the service sector’s optimism remained high, and there was sufficient confidence to maintain staffing levels in preparation for new products, expansion and increased competition.”
In this volatile economic landscape, it is essential that UK SME business owners maintain effective management of their company’s working capital and put processes in place to survive and thrive in challenging times.
Contact our specialist advisers at Beavis Morgan for guidance and strategic advice to help in formulating plans for your business in order to strengthen its prospects of success, achieve growth and maximise wealth. Our partner business, BM Structured Finance, is also available to help with sourcing and restructuring debt finance for SME businesses.