Severe shortages of workers and supplies have dragged down economic growth in Britain to the weakest levels since pandemic restrictions were eased in March, according to a closely watched business survey.
The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) showed that growth in private sector output slowed in August as firms battled with severe shortages while costs rose at the fastest pace since the late 1990s.
Business activity faltered in the dominant service sector, which accounts for 80% of the economy, while the slowdown was more pronounced in manufacturing where severe supply-chain disruption held back growth in factory output.
In a sign that the economic recovery from lockdown is waning, business expectations for the year ahead fell to their lowest since January and new orders eased to a seven-month low.
The IHS Markit/Cips flash purchasing managers’ index dropped from to 54.1 in September from 54.8 in August, on a scale where anything above 50 indicates expansion. City economists had forecast a reading of 54.5.
Chris Williamson, the chief business economist at IHS Markit, said the barometer of business activity would add to concerns that the UK economy was heading for a bout of stagflation, a period of weak economic growth accompanied by rapid growth in consumer prices.
The survey of about 1,200 service-sector firms and manufacturers, which is closely watched by the Bank of England and the Treasury for early warning signs from the economy, showed a sharp acceleration in companies’ costs. Against a backdrop of rising transport costs, product shortages and higher staff wages, firms raised their prices at the fastest pace since the survey began in July 1996.
“Shortages are meanwhile driving up prices at unprecedented rates as firms pass on higher supplier charges and increases in staff pay. Brexit was often cited as having exacerbated global pandemic-related supply and labour market constraints, as well as often being blamed on lost export sales,” Williamson said.