The UK service sector showed a continued upturn in business activity in September, although domestic demand was subdued.
However, the rate of expansion edged up only slightly on August’s figures and remained weaker than the average for the first half of the year.
The seasonally adjusted IHS Markit/CIPS Services purchasing managers’ index (PMI) stood at 53.6 in September, up from an 11-month low of 53.2 in August.
Growth in the third quarter as a whole eased slightly on the previous quarter, with a level of 53.5 in Q3 compared with 54.3 in Q2.
Subdued domestic demand acted as a drag on growth, with September’s rise in new work the slowest increase for 13 months.
Survey respondents reported resilient consumer spending and a healthy labour market, but said concerns about the business outlook were acting as a brake on growth.
Service providers cited subdued business-to-business sales and delayed decision-making on large projects as a result of Brexit-related uncertainty.
Firms also reported a decline in optimism on growth for the year ahead, with the number of respondents expecting a rise in business activity over the next 12 months at its lowest level since June.
However, the latest data showed a sustained rise in service sector employment, with the rate of job creation easing only slightly from August’s 19-month high.
A number of firms commented on an increasing number of unfilled vacancies, reflecting difficulties in recruiting suitably skilled staff.
Cost inflation reached a seven-month high and was among the strongest since early-2011, with higher expenses linked to rising food, energy and fuel bills, alongside increased prices for imported items and higher salaries.
Howard Archer, chief economic advisor to the EY ITEM Club, said the figures did little to encourage hopes that the UK economy would see a pick-up in activity in Q3.
“Services activity was reported to be particularly soft in September among consumer-facing sectors,” he said. “Worryingly, the services survey showed new business growth slowing in September to be at a 13-month low.
“Subdued demand and uncertainties over the economic outlook were cited, with a number of spending decisions being delayed.”