The latest service sector data, covering everything from pubs and restaurants to industrial and business companies, has shown healthy readings in the UK and US, but problems associated with inflation are brewing.

5 October saw the latest survey results from research firm IHS Markit for purchasing managers in the service sector around the world. Typically, a reading over 50 suggests rising confidence and a healthy economy, while readings below 50 indicate falling confidence. Persistently weak data usually points to a slowing economy.

For September, the flash reading in the UK was 55.4 against 55 in August, indicating a small improvement, but shortages of labour and supplies led to a seven-month backlog of unfinished work, the biggest since 2015.

Also significant was the rise in input prices, with cost inflation climbing at the second-fastest rate in 25 years surpassed only by July’s reading and prices charged to customers hitting a record high.

‘Service sector businesses widely noted that constrained supply, higher transport costs and rising salary payments had all pushed up inflationary pressures as customer demand recovered,’ the survey noted.

The Eurozone September reading also ticked higher to 56.4, although the bloc’s two largest members, France and Germany, grew at the slowest rate, and again the survey showed input cost inflation rocketing.

Concerns over higher inflation have been feeding into the stock market for weeks, driving a change in leadership not just in the UK but globally.

According to the latest Flow Show report from analysts at Bank of America, rotation is happening everywhere, out of growth stocks and risk assets like emerging markets into classic value sectors like energy, cyclicals and financials.

In the UK, a quick scan of the best and worst performers of the last six weeks shows lowly-rated stocks like Marks & Spencer (MKS), Babcock (BAB) and Royal Dutch Shell (RDSB) at the top of the table and highly rated stocks like Games Workshop (GAW), Renishaw (RSW) and AO World (AO.) at the bottom.

On a positive note, investors haven’t started selling the market yet. Bank of America data shows equities (typically in 401K pension plans but also in personal portfolios) now make up 50% of the wealth of the average US household, the highest level in 70 years.

For once, cash outperformed stocks and bonds in general in the third quarter, but consistent with the inflation narrative commodities are on course for their third best annual performance since 1960 (after 1973 and 1979), even with a strong US dollar.

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