UK services PMI unexpectedly rose in September

According to the report from IHS Markit/CIPS, September data indicated another strong recovery in UK service sector activity, but severe supply constraints contributed to escalating inflationary pressures and the slowest rise in new orders since the end of the winter lockdown. Rapid rises in fuel, energy and staff costs were passed on to customers in September. The rate of prices charged inflation accelerated sharply since August and was the fastest since the survey began in 1996.

The headline seasonally adjusted UK Services PMI Business Activity Index registered 55.4 in September, up slightly from August's six month low (55.0) and well inside expansion territory. Although the latest reading signalled a solid increase in overall business activity, the rate of expansion was still much weaker than the peak seen in May (62.9). Around 34% of the survey panel reported an increase in output during September, while only 13% signalled a reduction.

Higher levels of activity were mostly attributed to robust confidence among clients and favourable business conditions due to the end of pandemic restrictions. However, those noting a fall in activity often commented on supply chain disruptions and shortages of staff, especially in the hospitality sector.

New order growth weakened for the fourth month running in September. The latest increase in new business volumes was the slowest since order books returned to expansion in March. Staff shortages, supply issues and the end of the stamp duty holiday were among the most commonly cited reasons for softer demand.

Finally, latest data indicated that business optimism eased slightly since August. However, the majority of panel members (57%) expect a rise in output during the year ahead, while only 8% forecast a fall.