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U.K. Economy Seen Slowing Sharply on Record Staff Shortages

 

 

 

Britain’s economy grew at the slowest pace since the height of lockdown in February, which purchasing managers blamed on staff shortages that left them unable to meet demand.

IHS Markit said its survey showed a reading of 55.3 in August, well below the 58.7 predicted by economists. That reflected the lowest level of activity in six months for services and manufacturing.

While almost all restrictions in the U.K. have been lifted, virus cases remain high, meaning the number of companies saying shortages of staff and materials were hurting growth was a record 14 times the normal level. Still efforts to rebuild capacity prompted the fastest rise in employment numbers since Markit’s survey began in 1998.

“There are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter,” Chris Williamson, chief business economist at IHS Markit said Monday. “Rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.”

What Bloomberg Economics Says …

“The composite PMI slowed sharply in August, indicating the economy will move down a gear in 2H. We expect growth to undershoot the Bank of England’s forecasts for the remainder of this year as the combination of supply bottlenecks and greater caution in the face of the virus curbs spending.”

–Dan Hanson, Bloomberg Economics

A separate report from the CBI, Britain’s biggest business lobby group, showed manufacturing output slipped in August from a record rate in July. The expansion was 3% above the historical average, led by an expansion in food, drinks and tobacco. Car production dragged the index lower

“Early signs from the data suggest that growth in activity may have peaked,” CBI Lead Economist Alpesh Paleja said. “Despite the rebound in activity, ongoing disruptions could choke off future manufacturing growth.”

Supply constraints in the economy are pushing up prices and worrying Bank of England policy makers, who say they may need to tighten policy to keep a lid on inflation. The Markit survey showed those inflationary pressures eased slightly in August, although firms still noted higher wages and purchasing prices.

Markit’s composite measure has been above the 50 level that indicates growth since March when lockdown started to loosen. Readings for the services and manufacturing industries slid to 55.5 and 60.1 respectively in August.

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