UK services firms report sharpest rise in costs since late 2022

LONDON, May 6 (Reuters) - British services firms last month reported ​the sharpest ⁠acceleration in cost pressures in three-and-a-half years as ​the Iran war drove up prices for fuel and raw materials, a closely watched survey showed on Wednesday.

The wider ​S&P ‌Global Purchasing Managers' Index for the services sector rose to 52.7 from March's 50.5 - slightly higher than the ⁠52.0 initially reported for April. A reading below 50 signals ⁠contraction, while one above 50 signifies ​growth.

S&P Global said its gauge of input cost inflation for British services companies increased in April to its highest since November 2022, in the aftermath of Russia's full-scale invasion of Ukraine. Companies said higher transport ​costs and salaries ‌contributed to the surge.

More than half of firms reported an increase in their average cost burdens in April.

The Bank of England is closely watching measures of input prices and prices charged by businesses as it tries to assess whether the inflation impulse from the Iran war will ​last long enough to require interest rate hikes.

Prices charged by businesses also rose at the fastest ‌pace in more than three years as they passed on higher fuel costs to customers.

The monthly survey underscored the impact on Britain's economy from the ‌U.S.-Israeli war with Iran, which began in late February.

"April data signalled a modest recovery in UK service sector output growth after the considerable loss of momentum seen in March," said Tim Moore, economics director ​at S&P Global Market Intelligence.

"However, this improvement could easily prove short-lived as new business intakes remained subdued in comparison to ‌the start of 2026."

Business sentiment about the year ahead edged up slightly last month from March's nine-month low, but firms remained concerned about the economic outlook and inflationary pressures caused by the conflict.

While hiring contracted ⁠for the ⁠19th month in a row, S&P said the pace of job ‌cuts was its slowest since October. Firms said that was in part due to the non-replacement of voluntary leavers, worries about ​higher costs, and ​the impact of the Middle East conflict on demand.

Nonetheless, survey respondents reported ‌weak domestic and overseas demand in April.

The composite PMI, which includes last week's manufacturing data, was revised up to 52.6 from the preliminary reading of 52.0 and up from a six-month low of 50.3 in March. (Reporting by Suban Abdulla; Editing by Joe Bavier)