Output in the sector – which accounts for the biggest chunk of the economy and includes pubs, restaurants, banks and tourism – ticked up at the slowest rate for 18 months.
Researchers S&P Global and the Chartered Institute of Procurement and Supply (Cips) said cost pressures on firms were “extremely elevated” – and singled out soaring energy bills.
Businesses are also suffering as households rein in spending.
S&P and Cips use an index to measure output in the sector – with any reading above 50 showing it is growing. Last month’s result of 50.9 was down sharply on July’s 52.6.
Chris Williamson, chief business economist at S&P, explained: “Demand for consumer-facing services such as restaurants, hotels, travel and other recreational activities is collapsing under the weight of the cost-of-living crisis.”
“Demand for business services is also coming under pressure amid concerns over rising costs and the darkening economic outlook. Financial services firms are meanwhile reporting subdued trading amid the recent hikes in interest rates.”
He added: “Deteriorating trends in order books suggest the incoming Prime Minister will be dealing with an economy that is facing a heightened risk of recession, a deteriorating labour market and persistent elevated price pressures linked to the soaring cost of energy.”
The Bank of England last month projected a recession from the fourth quarter of this year, tipped over by rocketing gas prices.
It also said: “Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.”
Chief economist Dr John Glen of Cips said yesterday: “Input costs continued to rise at a rapid rate with services businesses left with no choice but to pass the pain on to clients and consumers.”
“While port disruption, Brexit paperwork and shortages all continue to play a role in driving inflation, the sector is relatively powerless in the face of ever-increasing energy bills.”