Service sector

UK service sector growth is slowing due to staff shortages and supply chain disruptions

Hiring of staff has reached its highest level since the start of the survey in July 1996, as companies seek to replenish their workforces in response to rising sales. Photo: Dominic Lipinski/PA Images via Getty Images

The UK services sector grew at its slowest pace since March last month, hit by staff shortages and supply chain disruptions, new data showed on Friday.

According to the IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI), a lack of raw materials and available labor in Britain sent the August reading to 55.0, revised to the down from a preliminary flash reading of 55.5.

This figure was also lower than the 59.6 recorded in July.

However, the PMI marked a fifth month above the 50 threshold – any reading above 50 indicates growth.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “The third consecutive monthly decline in growth in the services sector showed that a shortage of people and raw materials in August continued to dampen growth. recovery, after the spring surge. .”

The slowdown came amid widespread reports that staff shortages and disrupted supply chains had hampered growth last month.  Chart: IHS Markit

The slowdown came amid widespread reports that staff shortages and disrupted supply chains had hampered growth last month. Chart: IHS Markit

Hiring of staff hit its highest level since the survey began in July 1996, the data showed, as companies sought to replenish their workforces in response to rising sales.

However, due to competitive labor market conditions, wage pressures rose sharply in August.

The overall rate of cost inflation has eased since the previous month, but is the second fastest in the past 25 years, IHS Markit said.

Business optimism also hit a three-month high. The proportion of survey respondents who expected an expansion (60%) far exceeded those who expected a decline (8%).

Meanwhile, new business volumes fell from previous months’ levels, with businesses blaming the end of the stamp duty exemption and a subsequent cooling in housing demand.

Falling export orders, lack of tourism and Brexit-related trade frictions were also factors.

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Tim Moore, chief economics officer at IHS Markit, which compiles the survey, said: “The services sector lost momentum for the third month in a row as the impact of looser pandemic restrictions faded. in August.

“Many businesses have been constrained in growth due to staff shortages, self-isolation rules and stretched supply chain capacity.”

It comes as business activity remained strong in the eurozone last month, despite fears over rising cases of the Delta variant of the coronavirus.

IHS Markit said the bloc’s economy could be back to pre-COVID-19 levels by the end of the year.

The reading fell to 59.0 last month from July’s 15-year high of 60.2, but that was well above the 50 mark separating growth from contraction. It came in below a flash estimate of 59.5.

“It was another strong result for eurozone companies in August,” said IHS Markit senior economist Joe Hayes.

“Another strong quarter-on-quarter GDP growth is forecast for the third quarter, and we are certainly on track for the eurozone economy to return to pre-pandemic levels by the end of the year, if not sooner.”

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