By William Schomberg
LONDON (Reuters) - British services sector activity grew in July at the slowest pace since early 2021 when the country was under a coronavirus lockdown, although there was an easing of surging price pressures, a survey showed on Wednesday.
The S&P Global/CIPS UK Services Purchasing Managers' Index (PMI) dropped to 52.6, a 17-month low that was down from 54.3 in June and lower than a preliminary July estimate of 53.3 as the economy struggled under nearly double-digit inflation.
The combination of a slowing economy and price growth at a 40-year high is raising the stakes for the Bank of England, which will announce its next interest rate decision on Thursday.
It looks set to raise borrowing costs for the sixth time since December, possibly by half a percentage point which would be its biggest hike since 1995.
"Reduced levels of discretionary consumer spending and efforts by businesses to contain expenses due to escalating inflation have combined to squeeze demand," Tim Moore, S&P Global Market Intelligence's economics director, said.
Costs, while still growing quickly by historical standards, rose by the least since December and the increase in prices charged by firms was the smallest in five months.
"Any slowdown in inflationary pressures can't come soon enough for service providers, with many firms reporting growing customer resistance to price hikes and a subsequent downturn in demand," Moore said.
Firms continued to hire strongly even as they struggled to find suitable candidates and worried about inflation and higher interest rates. New business improved only slightly from a 16-month low in June.
S&P Global's Composite Purchasing Managers' Index - covering services and manufacturing firms, fell to 52.1 - also the lowest since February 2021 - from June's 53.7.
The weakening economy is a central topic in the race to replace Prime Minister Boris Johnson, with leading contender Liz Truss promising immediate tax cuts while former finance minister Rishi Sunak says bringing down inflation is his first priority.
(Writing by William Schomberg; Editing by Hugh Lawson)