Services economy expands again with firms passing on higher costs to customers

Activity in the Irish services economy expanded at a faster pace in July compared to the month before with companies seeing a “further sharp rise” in new business, according to the latest purchasing managers’ index for the sector from AIB.

Business confidence ticked up to a three-month high, supported by hopes of a sustained upturn, it found, while the rate of cost inflation for businesses cooled further from recent peaks, though remained elevated.

Companies continued to increase the prices they charged to customers in July, however, with the pace of price inflation matching a peak recorded in April.

The services business activity index rose to a reading of 56.3, up from 55.6 in June and remaining well higher than the significant 50 threshold, above which signifies that activity expanded rather than contracted. This was the 17th consecutive monthly rise in services output, with the growth broad-based.

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New business growth was strongest in the financial services sub-sector and weakest in transport, tourism and leisure, AIB said. While there was “a notable loss of momentum” in technology, media and telecoms in July, business confidence for this sub-sector hit a three-month high, as it did in the services sector as a whole.

“The AIB Irish Services PMI for July showed a re-acceleration in the pace of growth in the sector, in marked contrast to most other countries,” said AIB chief economist Oliver Mangan.

“Growth in new business remained strong, with the rate of increase in new export business picking up to a four-month high amid stronger client demand. As a result, July registered another significant increase in backlogs of outstanding business as pressure on capacity rose further,” he said.

“Meanwhile, there was yet another marked rise in employment, continuing the trend evident in the first half of the year.”

Companies continued to experience “severe upward pressure on input prices”, in particular on fuel, materials and labour costs, while also indicating that unfavourable exchange rate movements were adding to inflation.