UK services sector hit with record cost inflation spike after fuel prices surge
Businesses recorded cost inflation at the highest level since the aftermath of Liz Truss’ chaotic mini-Budget in April as the consequences of the Iran war continued to ripple through the economy.
A rapid increase in raw material prices led to a jump in costs for the manufacturing sector but the UK’s all-important services sector – often viewed as the engine of the nation’s economy with it contributing over 80 per cent to GDP – took the biggest hit.
The latest Flash Purchasing Manager’s Index (PMI) from S&P Global showed soaring fuel prices led to the services sector notching its largest acceleration in cost inflation since March since records began in July 1996.
It comes after oil prices reached a peak of $118 amidst the US-Israel war with Iran as traffic through the Strait of Hormuz – where around a fifth of the world’s global supply of oil flows through – came to a halt.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Prices have spiked higher at a rate not previously seen by the survey outside of the pandemic, suggesting inflation could rise more than many forecasters have been anticipating.”
He added prices were rising “not just because of surging energy costs” but also due to increases in “charges levied for a wide variety of goods and services, with price hikes often stoked by supply concerns.”
Job losses continue for nineteenth consecutive month
Rachel Reeves launched a support package in a bid to cool the rising energy costs for businesses earlier this month. The scheme, which the government claims will cut businesses’ bills by up to 25 per cent, will not come into operation until next year, although the Chancellor has said support would then be backdated to this month.
Still despite the cost woes, the headline PMI showed a reading of 52.0, increasing from 50.3 and staying above the neutral 50.0 mark which indicates whether a sector is growing.
This also came in stronger than expected, with analysts having pencilled a 49.8 reading for the month.
The UK economy has gathered some renewed momentum in April after the initial impact of the war in the Middle East caused growth to stall in March, but the upturn comes with a catch,” Williamson said.
“The improved rate of expansion is in part a reflection of a short-term boost from a rush to secure purchases ahead of feared price rises and supply shortages linked to the war.”
But business confidence still took a knock on the rising tensions. The PMI recorded higher transportation costs alongside dire confidence on the business and consumer front as constraints on demand.
Private sector employment numbers continued to tumble for the nineteenth month running, though did so at the slowest rate since October 2025.
“Lower payroll numbers partly reflected a lack of pressure on business capacity, as signalled by the sharpest decline in backlogs of work for five months,” the report said.