UK growth slows to six-month low as post-lockdown shortages bite

IHS Markit says there are clear signs of recovery losing momentum after buoyant Q2

Shoppers in Northumberland Street in Newcastle. UK retail sales slipped last month to the weakest performance since shops reopened in April. Photograph: Owen Humphreys/PA Wire

Shoppers in Northumberland Street in Newcastle. UK retail sales slipped last month to the weakest performance since shops reopened in April. Photograph: Owen Humphreys/PA Wire

 

Britain’s post-lockdown economic rebound slowed sharply in August as companies struggled with unprecedented shortages of staff and materials, though strong inflation pressures cooled a bit, a survey showed on Monday.

The IHS Markit/CIPS flash composite purchasing managers’ index (PMI) dropped for the third month in a row, sinking to 55.3 from 59.2 in July, its lowest since February and a sharper fall than a median forecast of 58.4 in a Reuters poll of economists.

The pace of growth was still slightly above the pre-pandemic average but IHS Markit said there were clear signs of the recovery losing momentum after a buoyant second quarter.

“Despite Covid-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages,” Chris Williamson, chief business economist at IHS Markit, said.

The equivalent PMI for the euro zone slowed much less, dropping to 59.5 from 60.2.

Companies have complained that self-isolation requirements for contacts of people with Covid-19 have made it hard for them to find staff but those requirements were dropped from August 13th for those fully vaccinated.

“Some businesses are finding recruitment difficult. With supply-chain disruptions also persisting inflationary pressures remain a concern for now despite the slowdown in CPI inflation in July,” Lloyds Bank economist Rhys Herbert said.

Employment growth

On a brighter note, the PMI’s employment growth measure hit its highest since the series began in 1998 as furloughed workers return, and businesses were more optimistic about future output.

The PMI’s gauge of input prices fell after hitting its highest in more than 20 years in July, and the prices charged by factories moved further away from June’s record high.

The Bank of England is watching to see whether a jump in inflation turns into more stubborn price growth.

The central bank said earlier this month it expected “modest monetary tightening” would be needed over its three-year forecast period.

The fall in the PMI was mostly driven by services firms who make up the bulk of Britain’s economy. Manufacturing dipped only slightly although automotive and electrical goods production fell into decline mainly due to supply constraints.

Data for the survey was collected between August 12th and August 19th. – Reuters