UK services firms report surge in costs, fading optimism as Iran war takes toll

LONDON, April 7 (Reuters) – Businesses in Britain’s services sector reported the biggest month-on-month jump in costs in March since 2021, driven by higher energy and transportation prices, according to a ​survey that underscored the inflationary risks from the Iran war.

The S&P Global Purchasing Managers’ ‌Index for the services industry, published on Tuesday, dropped to 50.5 from February’s 53.9 – further than the fall to 51.2 initially reported for March and its lowest reading in 11 months.

The composite PMI, which includes last ​week’s weaker manufacturing data, was revised down to 50.3 from the preliminary reading of 51.0.

S&P ​Global’s gauge of input prices paid by British services firms was the highest ⁠in nearly a year and the jump to 68.4 in March from 63.1 in February ​was the biggest from one month to the next since a February-to-March leap in 2021.

Manufacturers last ​week reported the biggest month-on-month jump in input costs since October 1992.

Around 40% of the respondents in Tuesday’s services survey reported an increase in their input costs during March.

Tim Moore, economics director at S&P Global Market ​Intelligence, said many companies reported suppliers passing on higher prices paid for energy, raw materials ​and shipping.

The survey’s gauge of prices charged by service businesses jumped to 58.5 in March from 55.2 in ‌February.

Bank of ⁠England Governor Andrew Bailey told Reuters last week that firms had limited pricing power to pass on cost increases although some pass-through of higher energy costs was likely.

Companies also reported weaker demand.

“UK service providers experienced a marked slowdown in output growth in March as the war in the ​Middle East encouraged greater ​risk aversion among clients ⁠and postponed investment decisions,” Moore said.

The services PMI’s measure of new export business dropped to 46.3 from 50.3, the fastest rate of decline ​in 11 months and below the 50 level that divides growth from ​contraction for ⁠the first time since last November when uncertainty in the run-up to finance minister Rachel Reeves’ budget hit businesses.

Companies also reported the biggest drop in new orders since July, although they cut staffing ⁠at the ​slowest pace in four months.

Optimism about the outlook was ​at its weakest since June last year, with services firms citing concerns about the duration of the Iran war and ​its impact on inflation, supply chains and borrowing costs.