UK July private sector growth slows on supply issues, worker shortages

by | Aug 4, 2021

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UK private-sector growth slowed sharply in July and inflationary pressures increased as supply-chain issues and enforced worker absences due to Covid-19 isolation rules hit the economy, a survey showed on Wednesday.
The IHS Markit/CIPS services Purchasing Managers’ Index (PMI) sank to 59.6 in July, its lowest reading since March, from 62.4 in June.

Price pressures also rose by the most since the survey began 25 years ago, ahead of new inflation forecasts due on Thursday from the Bank of England.

The broader composite PMI, which includes Tuesday’s manufacturing PMI data, showed a similar drop, to 59.2 from 62.2.

“More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we’ve already seen the peak phase of pent-up consumer spending,” said IHS Markit’s economics director, Tim Moore.

“Any re-acceleration of growth in August looks unlikely, however, as new orders increased at a much-reduced pace at the start of the third quarter.”

“Moreover, business expectations softened again during July, with UK firms the least optimistic about the growth outlook since January. Survey respondents cited worries about recruiting staff to meet business expansion plans and some suggested that escalating costs would hinder the recovery.”

July’s final PMI readings were well above preliminary “flash” data, however. IHS Markit said this reflected a boost to services businesses from the lifting of most remaining Covid-19 restrictions in England on July 19.

Service businesses were hit last month by the so-called “pingdemic” when hundreds of thousands of workers had to self-isolate for up to 10 days after being identified by a government smartphone app as a close contact of someone who had tested positive for coronavirus.

Wage costs, higher fuel prices and transport were the biggest factors pushing up costs in the service sector, where managers reported raising prices by the most since July 1996.

“Staff shortages and supply issues were a severe constraint on business capacity, which led to another strong rise in backlogs of work,” IHS Markit said.

“Tight labour market conditions led to greater wage pressures across the service economy and this contributed to the fastest increase in overall input costs since the survey began in July 1996. Prices charged by service sector companies also rose at a survey-record pace.”

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