Growth in Britain's dominant service sector slowed last month as rising oil prices, higher interest rates and higher wages pushed up companies' operating costs to their highest levels in three and a half years.
The Chartered Institute of Purchasing and Supply index, which measures activity in a sector accounting for two thirds of the economy, slipped from 59 in April to 57.4 in May instead of holding steady at 59 as markets expected.
But the index remained well above its long-term trend, indicating the robust strength of service firms. It was also the 14th successive month that the index had held above the 50 threshold separating growth from contraction.
The survey said expansion was driven by new orders, especially in hotels, restaurants and business services. Companies reported increased levels of advertising and marketing activities helped to boost demand. However, the expansion was moderated by higher interest rates.
On the downside, however, the input price index jumped to 61.5, its highest since October 2000, on the back of higher oil prices and salaries which threatened to squeeze corporate profit margins.
