Growth in the UK’s services sector rebounded last month with business activity picking up, but firms face a “short-lived” recovery amid surging costs and lower demand linked to war in the Middle East, a new survey has shown.

Experts cautioned that the outlook for firms may be weaker after a rush of activity in April.

The S&P Global UK services PMI survey showed a reading of 52.7 in April, up from 50.5 the previous month.

Any reading above 50.0 means the sector is growing while any reading below signals it is contracting.

Activity across the industry, which spans businesses from hospitality and leisure to healthcare and transport, has been increasing for almost a year.

But while the latest reading marked an improvement from March – when the US-Israel’s conflict with Iran escalated – it signals a slower rate of growth than at the start of the year.

Businesses taking part in the survey, which is watched closely by economists, cited worries about intensifying pressures on inflation, global supply shortages and elevated borrowing costs as factors holding back business and consumer demand in April.

Some firms said export sales were lower due to disruptions to business travel and weaker demand in the Middle East.

Nevertheless, others pointed out resilient global demand for technology services while backlogs of work also decreased.

But the survey revealed that cost pressures ramped up for businesses in the service industry last month.

Costs for companies rose at the fastest pace since November 2022, with firms widely attributing the increased bills to fuel costs and higher prices for raw materials including metals and plastics, which have been driven up by soaring energy prices since the start of the war.

Many firms also cited pressure from higher wages, following the increase to the national minimum wage at the start of April.

Tim Moore, economics director at S&P Global Market Intelligence, said April’s “modest recovery” for the industry could “easily prove short-lived as new business intakes remained subdued in comparison to the start of 2026”.

Mr Moore said: “Survey respondents widely noted that the Middle East conflict and subsequent global supply chain disruptions had weighed heavily on business and consumer confidence.”

Matt Swannell, chief economist for the Item Club, agreed that there were “already some signs that this jump will be short-lived as businesses reported little improvement in new work amidst weak domestic and foreign demand”.

“We think that the outlook for private sector activity is gloomier,” he went on.

“A sharp rise in inflation will cause households’ real incomes to fall and spending growth to slow.

“Supply chain disruption, rising costs and lingering geopolitical uncertainty will cause some businesses to put their investment plans on hold.”

Mr Swannell added that the survey suggests the Bank of England will prefer to keep interest rates held steady for the rest of the year, but that there was the potential for a hike in the summer.

Thomas Pugh, chief economist at RSM UK, said firms showed “resilience” last month, adding: “However, the rebound is partly fuelled by a rush of activity before price rises and supply shortages start to bite.”

He said future interest rate hikes were “more likely” as a result, but that “everything depends on how energy prices move going forward”.

Oil prices fell and Asian stock markets surged to record highs on Wednesday after Donald Trump said negotiations with Iran were making “great progress” toward a final agreement and announced a brief pause in US operations escorting ships through the Strait of Hormuz.

Brent crude tumbled 1.2 per cent to $108.51 a barrel, still well above its roughly $70 price before the war began, but lower than the highs of recent weeks.

Wall Street had already set records on Tuesday, with the S&P 500 rising 0.8 per cent to a new all-time high and the Nasdaq gaining 1 per cent, as oil pulled back sharply after briefly crossing $115 on Monday.

Strong corporate earnings underpinned the Wall Street rally. DuPont surged 8.4 per cent after the chemical giant reported better-than-expected first-quarter profits and raised its full-year forecasts, even as it acknowledged some impact from logistics disruptions in the Middle East.

Pinterest jumped 6.9 per cent after its number of active monthly users rose 11 per cent to 631 million, beating Wall Street’s sales and profit targets. AB InBev climbed 8.7 per cent after topping profit forecasts on growth for its Corona, Stella Artois and Michelob Ultra brands. “Cheers to beer,” chief executive Michel Doukeris said.

Palantir fell 6.9 per cent despite beating expectations, as its stock continued to struggle on worries about increased competition. American Electric Power rose 1.8 per cent and Cummins added 2.8 per cent after both reported stronger-than-expected results.

In Europe, markets were mixed. The CAC 40 rose 1.1 per cent in Paris while the FTSE 100 fell 1.4 per cent in London. Hong Kong’s Hang Seng fell 0.8 per cent. Many Asian markets were closed for holidays.

The momentum carried into Asia on Wednesday, where MSCI‘s broadest index of Asia-Pacific shares outside Japan jumped 2.3 per cent to a fresh all-time high. South Korea’s Kospi surged 5.1 per cent, clearing the 7,000 mark for the first time, as Samsung Electronics jumped 12 per cent and crossed a $1 trillion market valuation, overtaking Berkshire Hathaway.

The AI trade drove much of the enthusiasm. Advanced Micro Devices jumped 16.5 per cent in extended trading after forecasting second-quarter revenue above Wall Street expectations on strong demand from cloud computing companies accelerating spending on AI infrastructure.

“Due to the capital expenditure we are seeing from hyperscalers in the US, the earnings growth trajectory for sectors such as semiconductors, tech hardware, industrials and materials in Asia exceeds anything I have seen in a long time,” Rushil Khanna, head of equity investments for Asia at Ostrum, an affiliate of Natixis Investment Managers, told Reuters. “This capex is leading to material value creation in Asia as the provider of the picks and shovels to the AI ecosystem.”

The diplomatic backdrop of US-Iran talks also helped the markets. Mr Trump said he would briefly pause US operations escorting ships through the strait, which has been effectively closed since Iran blockaded it in late February, triggering a global energy shock. US defence secretary Pete Hegseth confirmed the ceasefire remained in place despite the US and Iran exchanging fire the previous day.

“Markets embraced a sense of calm and stability overnight, with the risk of escalation in the Middle East conflict viewed as having diminished,” analysts from Westpac wrote in a note.

Despite the optimism, analysts cautioned that significant uncertainties remained this week.

“A fragile ceasefire, a novel blockade, Friday’s NFP and diminishing odds of a US-Iran peace deal are all converging this week,” said Lukman Otunuga, head of market research at trading broker FXTM.

“Gold may find itself on the losing end of conflict-induced inflation fears, even as uncertainty grips markets.”

Gold rose 1.2 per cent to $4,609.59. The dollar index slipped 0.1 per cent, snapping a three-day winning streak, with the euro rising to $1.1724 and sterling to $1.3577.

The Australian dollar climbed 0.6 per cent to its highest since June 2022, buoyed by improved risk appetite and underpinned by a third consecutive interest rate rise from the Reserve Bank of Australia, which cited the Middle East conflict’s impact on fuel and commodity prices. The ten-year US Treasury yield held flat at 4.424 per cent.