Higher borrowing costs and worries about cost of living pressures have begun to take their toll on the UK services sector, which saw a slower uplift in June, according to an influential survey.

But while cost inflation levels across the sector eased last month, it may not be enough to avoid further interest rate hikes, economists suggested.

The closely-watched S&P Global/CIPS UK services PMI survey showed a reading of 53.7 last month, down from 55.2 in May.

Any score above 50 indicates the sector is growing, whereas a score below means it is shrinking.

June’s lower score marked a dip from May’s rebound, when buoyant demand for services boosted activity across the sector and added to inflationary pressures.

Workers in the services sector – which includes everything from restaurants and hotels, education and healthcare, to transport – said businesses and consumers were still spending robustly, despite pressure on budgets from inflation.

But the survey found weaker demand in pockets of the industry, such as real estate and construction, which have been affected by higher interest rates driving up mortgage costs.

Volumes of new work increased at the slowest pace since February, with customers often taking longer to weigh up concerns about the economy and higher borrowing costs before buying, the report found.

However, input cost inflation eased to the slowest rate in more than two years, in welcome news that price rises could have turned a corner.

But service providers still faced cost pressures among the strongest since the survey began nearly 27 years ago, with higher staff wages offsetting falling electricity and fuel bills.

Dr John Glen, chief economist at the Chartered Institute of Procurement and Supply (CIPS), said: “Though the sector remained in expansion mode, customer appetite to spend had decreased with concerns over interest rates and cost of living rises affecting household budgets.

“With the UK economy still a hair’s breadth away from recession, companies will be making modest plans for future business this year rather than for the highs experienced in the last few months.”

Samuel Tombs, chief UK economist for Pantheon Macroeconomics, said that while price rises appear to be slowing, it is not quick enough to avert further interest rate hikes.

It comes as the Bank of England is closely watching services sector inflation levels, which helps it decide whether or not it can stop raising borrowing costs.

“The Monetary Policy Committee (MPC) will need to see price rises slow over a period of at least a few months before it is willing to call time on its hiking cycle”, Mr Tombs said.