The UK service sector continued to rebound strongly in September, but significant supply constraints contributed to rising inflationary pressures and the slowest increase in new orders since the end of the winter lockdown. Customers were hit with steep increases in fuel, energy, and staffing costs.

The headline seasonally adjusted PMI Business Activity Index stood at 55.4, firmly within expansion territory. Despite the fact that the latest figure indicated a substantial improvement in overall business activity, the rate of expansion was still significantly lower than the May peak (62.9).

Around 34% of the survey panel reported an increase in output, while just 13% reported a decrease. The increased activity was linked to strong client confidence and favourable business conditions as a result of the lifting of pandemic restrictions. Those who noted a drop in activity, on the other hand, frequently mentioned supply chain issues and staff shortages, particularly in the hospitality industry. 

New order growth slowed for the fourth month in a row. Charges rose at a record pace amid supply constraints and a spike in costs due to a lack of candidates to fill vacancies and a continually high number of departing staff. 

Efforts to address the recent surge in work backlogs across the service economy have been hindered by a lack of workers and long wait periods for supplier deliveries. Service sector businesses experienced another wave of steep input price inflation due to supply chain issues. 

As customer demand improved, service sector businesses reported that constrained supply, increasing transportation costs, and increasing salary payments had all pushed up inflationary pressures.

Finally, business optimism dipped marginally since August.