The firms, which include pubs, hotels, restaurants, and leisure facilities, posted 93.3 on the bank’s UK Sector Tracker’s Input Cost Index and was driven by higher operating costs and recruitment challenges.
The UK Sector Tracker is an evolution of the Lloyds Bank UK Recovery Tracker. It uses PMI data from S&P Global to shed light on current trends in the UK economy. A reading above 50 indicates expansion on an index, while a reading below 50 indicates contraction.
Firms across the UK faced significant price pressures in May as the index reached a record high of 85.9 – exceeding the previous record set in April (83.5) and well above the 10-year average reading of 60.0.
Elsewhere, the number of UK sectors reporting a fall in output doubled in May, as inflation continued to drive down demand for goods and services.
Six out of the 14 sectors monitored by the tracker saw overall output contract, compared to three in April. This was the largest number reporting a fall in output since February 2021, despite eight sectors seeing output growth, down from 11 in April.
The slowdown was driven by falling demand, Lloyds claimed, as consumers and businesses reined in spending amid record levels of inflation. Eight out of the 14 sectors monitored experienced a fall in new orders in May – the highest number since January 2021.
According to Lloyds, it is expected businesses will focus on balancing their levels of stocks and to ensure they have sufficient raw materials ahead of any further price rises, but avoid having too much working capital tied up, restrict investments elsewhere.
Jeavon Lolay, head of economics and market insight at Lloyds Bank Commercial Banking, said high inflation is "dampening" consumer demand and "increasingly weighing" on the ability of companies to pass on rising costs.
"Our latest UK Sector Tracker shows service businesses having their margins squeezed more tightly than manufacturers," he added.
“Recently, the gap between input costs and prices charged was widest for manufacturers, primarily reflecting the impact of the pandemic on international supply chains and stronger relative consumer demand for goods than services."
