Business activity growth picked up across the UK service sector in December, but there were softer rises in new work and employment numbers.
At the same time, service providers indicated another marked increase in their average prices charged, which was overwhelmingly linked to strong cost pressures.
Survey respondents signalled the fastest rise in operating expenses for three months, reflecting higher transportation costs, staff salaries and utility bills in December.
The seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index registered 54.2 in December, up from 53.8 in the previous month, to signal the second-fastest upturn in service sector output since April 2017. Higher levels of business activity have now been recorded for 17 months running, supported by the resilient economic backdrop and rising consumer spending.
However, service providers noted that Brexit-related uncertainty continued to hold back clients' willingness to spend at the end of 2017. New business volumes increased at a solid pace in December, but the latest upturn was the slowest recorded since August 2016.
Softer rises in incoming new work helped to alleviate pressures on operating capacity across the service economy at the end of the year. Although only marginal, the latest fall in backlogs of work was the joint-fastest since February 2017.
Service providers recorded a moderate increase in workforce numbers in December, but the rate of job creation slipped to a nine-month low. Some firms suggested that tight labour market conditions had led to difficulties replacing departing staff. However, there were also reports that efforts to reduce operating costs had acted as a brake on employment growth.
Input price inflation reached its highest level since last September, with service providers noting upward pressures on costs from a wide range of sources. In particular, survey respondents cited higher fuel prices, utility bills, food costs and salary payments in December.
Meanwhile, average prices charged increased at a robust pace across the service sector, although the rate of inflation eased from November's peak.
Business optimism picked up to a seven-month high in December, with around 43% of the survey panel expecting a rise in business activity over the course of 2018. This was linked to new product launches and, in some cases, hopes of a boost to demand from stronger global economic conditions.