UK services businesses are facing a difficult trade-off. Demand is still growing, but rising fuel and energy costs are putting fresh pressure on their margins.

The latest S&P Global Purchasing Managers' Index shows the UK services sector remained in growth during September, with a reading of 52.1. Anything above 50 indicates expansion. However, growth slowed from 52.5 in August, making September one of the weaker months for the sector since June.

At the same time, businesses reported a sharp increase in their costs, driven partly by higher fuel prices linked to the ongoing conflict in the Middle East.

That pressure is now reaching customers.

Businesses are starting to push prices higher

The survey found that prices charged by UK service companies increased at their fastest pace since May.

For a business already dealing with higher wages, rent, software subscriptions and other operating expenses, another jump in energy and transport costs creates a difficult decision.

Absorb the increase and protect customers from higher prices, or raise prices and risk losing demand.

More than a third of businesses surveyed reported an increase in their average cost burdens. The pressure is also affecting hiring, with employment in the services sector falling for the 24th consecutive month, the longest period of decline since records began in 1997.

For smaller businesses, the problem can be even harder to manage.

A large company may have purchasing power, cash reserves or longer-term contracts to soften a cost shock. A small agency, retailer, hospitality business or logistics operator may have far less room to absorb another increase.

The awkward part is that demand is not exactly booming

The latest figures do not suggest that businesses are facing a collapse in demand.

Services activity is still expanding. But confidence has weakened slightly, while companies continue to report concerns around costs, energy prices, borrowing and the wider economic outlook.

That creates an uncomfortable environment for founders.

Raising prices when customers are already cautious can be risky. Keeping prices unchanged can leave a business working harder for less profit.

For startups and SMEs, this makes pricing strategy more important than ever.

Instead of automatically passing every cost increase to customers, businesses may need to look closely at which products and services actually generate healthy margins, where costs can be reduced and whether customers are receiving enough value to justify a price increase.

What founders should be watching

The bigger concern is whether today's higher costs become permanent.

S&P Global has warned that the renewed increase in service-sector prices will be closely watched by the Bank of England, particularly because services inflation tends to be an important indicator of underlying price pressure.

For founders, the lesson is more practical.

Know your numbers before your costs force you to.

A business that understands its margins, pricing flexibility and customer value proposition has more options when costs rise. One that is simply watching the bank balance may discover the problem too late.

The UK services economy is still growing, but September's figures show that growth is becoming more expensive.

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