The UK’s supply chain crisis has dragged growth down to a six-month low, as companies struggle to handle shortages of staff and raw materials.
Activity weakened across the service sector in August, and rose at the slowest since the recovery began in March after the lockdown eased. Backlogs of works built up despite a surge in hiring.
That’s according to the latest IHS Markit/ CIPS UK Services PMI Business Activity Index, just released — matching a similar slowdown at factories reported earlier this week.
This slowdown is partly due to a return to more normal demand after the initial post-pandemic surge.
But there were also widespread reports that shortages of staff and disrupted supply chains had constrained growth in August, says Markit — as the lack of key workers such as lorry drivers hits retailers.
Services companies also reported a “solid increase” in backlogs of work across the service economy, which were overwhelmingly blamed on staff shortages.
Companies surveyed in the report pointed to unexpectedly high levels of employee turnover, as well as absences due to COVID-19 isolation rules — which were relaxed for double-vaccinated people during August.
This has pulled the UK Services PMI down to 55.0, towards the 50-point mark showing stagnation. That’s down from 59.6 in July, and sharply below below May’s record high of 62.9.
On the upside, firms reported that staff recruitment picked up to its strongest since the survey began in July 1996 — as businesses sought to rebuild workforce numbers in response to rising sales.
Output across the wider private sector also eased considerably in August, Markit adds — with both service sector and manufacturing firms signalling the weakest growth for six months.
Private sector employment numbers jumped at the fastest pace since this index began in January 1998, largely fuelled by a rapid rise in recruitment across the service economy.
But, the report also shows that shortages of staff and raw materials acted as a constraint on the recovery in August, with supply chain disruption leading to an especially sharp rise in backlogs of work at manufacturing companies.
Tim Moore, Economics Director at IHS Markit, which compiles the survey, explains:
“The service sector lost momentum for the third consecutive month as the impact of looser pandemic restrictions faded in August. Many businesses suffered constraints on growth due to staff shortages, self-isolation rules and stretched supply chain capacity.
“Service providers signalled the sharpest rise in employment since data collection began 25 years ago. Additional staff recruitment typically reflected efforts to return workforce numbers to pre-pandemic levels after widespread job cuts last year. Many survey respondents commented on long wait times to fill vacancies and an unexpectedly high staff turnover as the UK economy reopened.
Tight labour market conditions pushed up wages as service sector companies sought to attract and retain employees. The overall rate of input cost inflation remained steep, but eased from the record high seen in July. “Business optimism edged up to a three-month high during August, suggesting that service providers have become slightly more confident about longer-term prospects for demand and supply availability.”