Prices charged by UK service providers rose at the fastest pace for more than 25 years in January as business activity strengthened, a survey showed.
About one in three service businesses increased their prices and only 3% reported a decline, according to the IHS Markit/CIPS UK purchasing managers’ index. The increase was the highest on record since the survey began in 1996.
Providers upped their prices in response to rising wages, energy, logistics and other costs. Business expenses rose at the second-highest rate in the survey’s history.
Price increases in the UK’s dominant sector will add to the cost of living crunch affecting UK households. Soaring energy costs, imminent tax rises and rising interest rates are combining to put pressure on domestic budgets as prices in shops rise.
Providers increased prices as the sector regained momentum with constraints from the Omicron variant easing and customer demand returning. The headline PMI business activity index picked up to 54.1 after dropping to a 10-month low of 53.6 in December.
Output growth was weaker than the average 56 score for 2021 because of pandemic restrictions but new business growth accelerated as clients looked ahead to fewer Omicron restrictions. New orders and rising sentiment prompted service providers to hire more workers amid a skills shortage.
Tim Moore, economics director at IHS Markit, said: “The latest PMI data provide good news about prospects for the UK economy in 2022 as demand has started to recover from the impact of Omicron restrictions and most businesses expect only a temporary slowdown from cancelled bookings and staff absences. However, record price increases in the service economy are set to add to the cost of living crisis for UK households.”