UK’s Covid recovery slows amid staff and materials shortages

Growth in private sector output slid to six-month low in August, survey finds

Britain’s economic recovery from lockdown has slowed sharply in the past month despite the removal of most remaining pandemic restrictions, as businesses suffered the worst shortages of workers and materials in decades.

The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) showed that growth in private sector output slowed to a six-month low in August.

Problems with hiring workers and shortages of materials were 14 times higher than usual, and the worst since the survey of business activity began in January 1998.

Separate figures from the Confederation of British Industry showed British manufacturers suffering from the worst problems with stocks of components and raw materials in August since the business lobby group started tracking industrial production in April 1977.

Factory output remained resilient by historical standards in the three months to August, with activity driven by food, drinks and tobacco producers. However, weakness in car production – where manufacturers have struggled with global shortages of microchips – dragged on growth.

Alpesh Paleja, the CBI’s principal economist, said many firms were feeling the pinch from the supply chain disruption.

“Despite the rebound in activity, ongoing disruptions could choke off future manufacturing growth. It’s therefore vital that businesses and the government continue to work together to smooth over some of the frictions in supply chains and the wider sector, until activity settles back down to normal levels,” he said.

In a sign that the economic recovery from lockdown is losing momentum, the IHS Markit/Cips flash purchasing managers’ index dropped from to 55.3 in August from 59.2 in July. Any reading above 50 indicates expansion.

It comes despite the easing of most remaining pandemic restrictions on 19 July. Chris Williamson, the chief business economist at IHS Markit, said rising coronavirus infections were deterring consumer spending, while businesses were struggling with acute supply shortages.

“The number of companies reporting that output had fallen due to staff or materials shortages has risen far above anything ever seen previously in more than 20 years of survey history,” he said. “In manufacturing, sectors including automotive production and electrical goods have fallen into decline due mainly to supply constraints.”

Job vacancies across the UK have risen to record levels in recent months, while many firms have been forced to temporarily close or reduce production after staff were pinged by the NHS Covid app.

Disruption to global supply chains linked to the pandemic and Brexit have also triggered shortages of raw materials. Economists have warned that sustained supply chain problems and staff shortages could push up inflation, as companies seek to pass on higher production costs to consumers.

The IHS/Markit survey of 1,300 manufacturers and service sector companies, which is tracked by the Bank of England and the Treasury for early warning signs from the economy, showed employment rising at the fastest rate since the survey began.

Firms responding to the survey said there was growing pressure to raise wages in the hunt for new recruits. There were also widespread reports that rising shipping costs and shortages of raw materials had led to intense price pressures. However, the rate of inflation for input costs eased to a four-month low in August, while factory gate prices rose at the slowest pace since May.

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Duncan Brock, a group director at Cips, said the shortages were beginning to feed through into higher wages and increased shipping costs. “An abnormally large slowdown in overall activity in August offers a stark warning to the UK economy that the accelerated levels of growth we’ve seen earlier this summer are not sustainable,” he said.

Figures published earlier on Monday showed a similar picture in the eurozone, although private sector activity managed to remain at stronger levels than in the UK despite widespread supply chain delays. This pulled Markit’s flash composite PMI for the eurozone down to 59.5 in August from a record high of 60.2 in July.

Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said UK goods export orders grew at a significantly slower pace than in the eurozone for the eighth consecutive month. “[This highlights that] Brexit has impeded the British economy’s recovery,” he said.

Private sector output in the US economy also slowed sharply in August, as supply constraints held back growth in the world’s biggest economy. The IHS Markit flash US composite PMI fell to 55.4 in August from 55.9 in July, hitting an eight-month low.

Contributor

Richard Partington Economics correspondent

The GuardianTramp

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