The S&P Global/CIPS purchasing managers’ index for the sector fell to 50.9 from 52.6 in July.
This was above the 50.0 mark that separates contraction from expansion, but the lowest level for 18 months.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "UK private sector business activity fell for the first time in a year-and-a-half in August as an increasingly severe downturn in manufacturing was accompanied by a near-stalling of the vast services sector.
"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, with demand for business services 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, adding to an increasingly broad-based malaise across the economy.”
The news came as Liz Truss was named the new UK prime minister. Commenting on this, Kate Nicholls, CEO of UKHospitality, said: “Congratulations to Liz Truss on her election as the new leader of the Conservative Party and our Prime Minister. We very much look forward to working closely with her and the new Cabinet in the coming weeks, as we strive to save the hospitality industry, which is experiencing crushing cost rises.
“The new government must act quickly and decisively to address the soaring energy bills that are facing consumers and businesses. With the right package of support – including a reduction in the headline rate of VAT for the sector to 12.5%, a business rates holiday, the deferral of all environmental levies, the reinstatement of a HMRC Time to Pay scheme and the reintroduction of a trade credit insurance scheme for energy – the sector will be well placed to aid growth through generating jobs and local investment.
“Pre-pandemic, our industry spent £10bn a year in high-street regeneration and employed 3.2m people but with energy bills for hospitality businesses rising 300% on average – and as high as 750% in some cases – we desperately need a package of support put in place if we are to be able to play our part in the UK’s economic recovery and growth.”