The rise in oil prices to their highest level for more than a decade could threaten recovery in the services sector in coming months, economists have warned.
The upward march of oil costs has already had a negative impact, with services overheads climbing in May, according to new data from NCB stockbrokers.
Should the trend continue, the services upturn may be undermined, after a year of sustained growth, according to commentators.
"If higher oil prices are sustained it will have the equivalent effect as an increase in taxation and will harm growth," said Mr Jim Power, chief economist with Friends First.
Although the jump in input costs, to 62.4 from an April reading of 58.5 has sounded an ominous note, the performance of the services sector last month was otherwise brisk, with the NCB purchasing managers index increasing for the 12th month running, to 59.2 from 58.7. A rating above 50 indicates expansion.
There was a knock-on effect on employment, which continued to improve, although at a slower rate than in the previous month (54.1 from 54.8).
It is clear that the services economy is performing strongly, lifted by greater buoyancy globally, said experts.
"The services sector continued to grow rapidly in May with business activity and new business accelerating as well as backlogs of work," said Mr Eunan King, senior economist at NCB.
However, with output prices down at a time of rising input, charges margins are coming under greater pressure, said Mr Power.
Nevertheless, 60 per cent of respondent companies were broadly positive about near-term prospects. Many were also hopeful for future growth.
