Inflation and ‘pingdemic’ slow UK’s service sector recovery

Costs rose at fastest pace in at least 25 years in July as firms hit by supply chain delays and worker shortages

Growth in Britain’s dominant services sector has slowed to its weakest since March after businesses were hit last month by a triple whammy of bottlenecks, workers self-isolating and a less generous tax break for homebuyers.

The latest monthly health check on UK services firms – which account for just under 80% of the economy – found costs rising at their fastest pace in at least 25 years in July, and raised concerns that the best of the UK’s economic recovery from the winter lockdown restrictions might be over.

The report from IHS Markit and the Chartered Institute of Procurement & Supply said firms were struggling with supply chain delays and shortages of workers exacerbated by the “pingdemic”, the instructions to self-isolate that have been running at more than 500,000 a week.

Further evidence of the impact of the “pingdemic” came from the retail analysts Springboard, which found the boost to bricks and mortar retailers from the lifting of restrictions on 19 July had been offset by shoppers being forced to stay at home.

Meanwhile, the jobs site reported that labour shortages in the hospitality sector had been intensified by 93,000 EU workers leaving the UK in the past year.

The hospitality sector has long relied on overseas nationals, particularly in London where up to three-quarters of workers were from the EU before the pandemic. A poll of employers had found that of the sector’s 3.2 million workers, the overall percentage of EU nationals had fallen from 22% to 19% over the last 18 months.

The website said it currently had more than 28,000 vacancies being advertised – an increase of 342% since the re-opening of pubs and restaurants. Three out of five hospitality businesses said applications from UK workers were at record levels.

Springboard’s footfall figures showed the modest boost after “freedom day” was not enough to prevent a drop in shopper visits to high streets, malls and retail parks in July overall. Compared with the same month in 2019, footfall was down 24.2%, after a drop of 22.2% in June.

Diane Wehrle, Springboard’s insights director, said the week-on-week increase in footfall had been limited to about 1% in the days after 19 July. “This was undoubtedly due to a combination of weather – incredibly hot temperatures in the week of freedom day followed by rain the following week – together with the “pingdemic”, which curtailed shoppers’ visits to stores and destinations in case it resulted in them needing to self-isolate, a key issue for many people with summer holiday bookings in August.”

IHS Markit/Cips said the reduction in the threshold at which stamp duty is paid on house purchases from £500,000 to £250,000 in England and Northern Ireland at the end of June was also a factor in slowing growth in activity to a four-month low.

The purchasing managers’ index for July came in at 59.6, down from 62.4 in June – well above the 50-point level that marks whether activity is rising or falling.

Tim Moore, an economics director at IHS Markit, which compiles the survey, said “July data illustrates that recovery speed across the UK economy has slowed in comparison to the second quarter of 2021. 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.”

With some members of the Bank of England’s monetary policy committee starting to fret about inflation, the survey showed growing price pressures. The committee will raise its short-term inflation forecast when it meets on Thursday but a tougher policy stance is seen as unlikely by the City.

IHS Markit/Cips said difficulties in finding staff pushed up wages and contributed to the fastest increase in overall input costs since their survey was first published in July 1996. Prices charged by service sector companies also rose at the fastest on record.

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The report said backlogs of work increased for a fifth successive month and many companies responding to the survey reported on staff shortages because of coronavirus isolation rules.

Duncan Brock, a group director at the Cips, said: “We suspect the best of the post-pandemic recovery could be behind us, especially if higher leisure and hospitality costs diminish appetite for consumer spending.”


Larry Elliott Economics editor

The GuardianTramp

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