Britain’s recovery from its winter lockdown has slowed dramatically as businesses grapple with declining consumer demand and a shortage of materials and workers, the latest snapshot of the economy found.
The update closely followed by IHS Markit and the Cips reported slower growth since March amid signs of a major staff shortage and a new cautionary mood among the public sparked by rapidly rising rates of infection by coronavirus.
The survey, conducted in the 10-day period through July 21, showed that the economy was still expanding, but the markedly slower growth rate raised immediate concerns that the recovery was stalling.
Chris Williamson, Chief Business Economist at IHS Markit, said: “In July, the recent spurt of growth in the UK economy was quelled by a growing wave of virus infections, reducing customer demand, disrupting business supply chains and caused widespread staff shortages, and also cast a darkening shadow over the picture. “
The IHS Markit / Cips Purchasing Managers Index fell from 62.2 to 57.7 in July, with declines in the manufacturing and services sectors. Any reading above 50 indicates expansion.
The government had hoped the lifting of the restrictions on July 19 would give the economy a boost, but Williamson said it now looks unlikely.
“Although the July flash survey only covered three days of the full relaxation of Covid restrictions, any imminent acceleration of growth in August appears unlikely due to a sharp slowdown in overall new order growth recorded during July,” he said.
Meanwhile, concerns about the Delta variant have overshadowed the passage of ‘freedom day’ and were a key factor alongside Brexit and rising costs behind a sharp drop in business expectations for next year, which they fell to their lowest level since last October. “
The PMI reported the fastest rise in average costs for businesses in the survey’s 23-year history, driven by a sharp rise in the service sector linked to wage inflation, higher transportation bills, and price increases by part from suppliers. Manufacturers also posted another rapid pickup in purchases, although the inflation rate declined from the all-time high in June.
The Eurozone PMI showed a different picture than the UK, with business activity climbing to a 21-year high.
The UK PMI release followed the government’s decision to allow key worker groups to avoid self-isolation after concerns that the “pingdemic” could lead to food shortages and disruption of transport and energy networks. More than 600,000 people received self-isolation alerts last week.
Official retail sales figures showed a 0.5% increase in June, a larger increase than analysts expected, but the figures were distorted by an increase in food spending, which is believed to be related to fans. players who watch Euro 2020 on television.
Williamson said transportation, hospitality and other consumer-oriented services had been hit the hardest by the slowdown.
“The PMI indicates that GDP growth will probably have decelerated in the third quarter, after having rebounded strongly in the second quarter,” he added.
Martin Beck, Senior Economic Advisor to the EY Item Club, said: “After the relaxation of Covid-19 restrictions triggered an improvement in PMIs earlier this year, a drop in June indices signaled that the initial reopening momentum faded. This appears to have continued into July. “
Samuel Tombs, UK Chief Economist at Pantheon Macroeconomics, said: “The sharp drop in the July composite PMI provides further evidence that the economic recovery is faltering. Of course, the composite PMI remains one of the most optimistic indicators; it remained well above its 23-year average of 53.7, thus, in theory, pointing to a further solid monthly GDP increase. However, the PMI is heavily influenced by sentiment, so its direction is often more important than its level. Most of the other indicators suggest that the recovery has stalled, temporarily, due to the third wave of Covid-19 infections. “
George is Digismak’s reported cum editor with 13 years of experience in Journalism