The UK economy’s post-lockdown boom stalled this month as firms continued to struggle with staff shortages, as a result of the so-called ‘pingdemic’, but strong inflation pressures eased slightly.
The IHS Markit/CIPS flash composite PMI dropped for the third consecutive month, sinking to 55.3 from 59.2 in July – its lowest since February- according to the latest survey, published this morning.
While the rate of growth was still just above the pre-pandemic average, chief business economist at IHS Markit, Chris Williamson reportedly said: “there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter.”
“Despite COVID-19 containment measures easing to the lowest since the pandemic began,” Williamson continued: “rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.”
Although many companies have complained that self-isolation rules have resulted in staff shortages, the requirements were removed for people with double vaccinations from 13 August onwards.
Employment rates hit a record high as previously furloughed staff returned to work, giving businesses cause for some optimism about their future output.
After hitting a more than 20-year record high in July, a gauge of input prices fell.
The PMI fall was driven for the most part by service businesses, which make up a significant proportion of the UK economy. Manufacturing fell only slightly – though automative and electrical goods production went into decline because of ongoing supply issues.
The Bank of England (BoE) is waiting to see whether a jump in inflation turns into more stubborn price growth.
Earlier this month the BoE said it expected “modest monetary tightening” would be needed over its three-year forecast period.
“The question on everyone’s mind,” said HSBC chief investment officer Willem Sels, “is how much the re-acceleration of the COVID-19 infection rate, the disruptions in the supply chain and labour shortages will offset the positive effects of the continued economic reopening.”
“While the ‘pingdemic’ situation seems to have improved, there are some signs that the initial boost to consumer spending coming from the reopening is fading. And businesses that are facing shortages in either goods or workers often have to react by paying more, increasing cost pressures.”
Senior economic advisor to the EY Item Club, Martin Beck, commented on the figures: “The end of the furlough scheme in September should help to alleviate labour shortages, given that sectors with high numbers of vacancies have also tended to see high usage of the furlough scheme. But while supply chain disruption should begin to unwind as we move through H2 2021, rebuilding inventories and clearing backlogs will take time.”
Data for the PMI survey was collected between 12 and 19 August.