The UK services sector has recorded its highest cost inflation spike since records began, driven by a surge in fuel prices amid the ongoing conflict in Iran. According to the latest Flash Purchasing Manager’s Index (PMI) from S&P Global, the services sector experienced its largest monthly acceleration in cost inflation since July 1996.
Impact of Fuel Price Surge
Soaring fuel prices, which reached $118 per barrel due to the US-Israel war with Iran, have disrupted global supply chains. Traffic through the Strait of Hormuz, a critical chokepoint for about one-fifth of the world's oil supply, has come to a halt. This has led to a rapid increase in raw material costs, affecting both manufacturing and services sectors.
Services Sector Worst Hit
While manufacturing also saw a jump in costs, the services sector—contributing over 80% to UK GDP—took the biggest hit. The record cost inflation spike surpasses levels seen after Liz Truss’s mini-Budget in 2022, indicating a severe economic impact.
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 that price increases were not only due to surging energy costs but also to charges levied for a wide variety of goods and services, often stoked by supply concerns.
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