The UK supply chain crisis has dragged growth to a six-month low as companies struggle to manage shortages of staff and raw materials.
Activity weakened across the services sector in August and rallied to a low since the start of the recovery in March following the easing of the bloc. Backlogs accumulated despite an increase in hiring.
This is according to the latest IHS Markit / CIPS UK Services PMI Business Activity Index, just released, which matches a similar slowdown in factories reported earlier this week.
This slowdown is partly due to a return to more normal demand after the initial post-pandemic hike.
But there were also widespread reports that staff shortages and disrupted supply chains had limited growth in August, Markit says, as a lack of key workers like truckers affects retailers.
Service companies also reported a “solid rise” in backlogs across the service economy, which was largely attributed to staff shortages.
Companies surveyed in the report indicated unexpectedly high levels of employee turnover, as well as absences due to COVID-19 isolation rules, which were relaxed for people with dual vaccinations in August.
This has reduced the UK services PMI to 55.0, towards the 50-point mark showing stagnation. This is down from 59.6 in July, and well below the May record high of 62.9.
On the upside, companies reported that staff recruitment has risen to the maximum since the survey began in July 1996, as companies sought to rebuild workforce numbers in response to increased sales.
Production in the broader private sector also declined considerably in August, Markit adds, with the service sector and manufacturing companies reporting the weakest growth in six months.
Private sector employment numbers have increased at the fastest pace since this index began in January 1998, largely fueled by a rapid increase in hiring in the service economy.
But the report also shows that the shortage of staff and raw materials acted as a constraint on the recovery in August, with the disruption of the supply chain leading to a particularly strong increase in backlogs at manufacturing companies.
Tim Moore, Economic Director at IHS Markit, who fills out the survey, explains:
“The services sector lost momentum for the third consecutive month as the impact of the looser restrictions on the pandemic faded in August. Many companies have faced growth constraints due to staff shortages, self-isolation rules and the capacity of the elongated supply chain.
“Service providers have reported the sharpest increase in employment since the start of data collection 25 years ago. The recruitment of additional staff typically reflected efforts to bring the number of the workforce back to pre-pandemic levels following last year’s widespread job cuts. Many respondents commented on long waiting times to fill vacancies and unexpectedly high staff turnover as the UK economy reopens.
Tight labor market conditions pushed wages up as service sector companies tried to attract and retain employees. The overall inflation rate of input costs remained high, but decreased from the all-time high recorded in July. “Business optimism rose to a three-month high in August, suggesting that service providers have become slightly more confident about the long-term outlook for supply and demand.”
[ https://www.theguardian.com/business/live/2021/sep/03/service-sector-china-uk-us-jobs-payroll-markets-business-live https://d26toa8f6ahusa.cloudfront.net/wp-content/uploads/2021/07/30214746/a-quiet-place-part-2-bigs-16.pdf