Britain’s recovery slowed in July as the “pingdemic” hit both consumer spending and staffing in the country’s dominant services sector.
Labour shortages, rising wages and higher costs also drove companies to raise their prices at the fastest pace in at least 25 years, according to the closely watched purchasing managers’ index for services in July.
The PMI survey, compiled by IHS Markit and the Chartered Institute of Procurement and Supply, confirmed that the economy has been hit by the millions of staff forced to self-isolate under Covid-19 rules, as companies were left with no option but to reduce operations.
Demand has also been hit, with people staying at home rather than heading to shops and restaurants, the survey found.
Its reading of activity in the services sector, which accounts for four fifths of national output, dropped from 62.4 in June to 59.6 in July. Although well above the 50 mark that indicates growth, it was the slowest rate of expansion since the end of lockdown in March.
“While many firms commented on strong consumer spending and a sustained recovery in demand, there were also reports that Covid-19 isolation rules had negatively influenced sales volumes,” the survey said. “Many service providers commented on staff shortages due to Covid-19 isolation rules.”
Samuel Tombs, UK economist at Pantheon Macroeconomics, said: “The sizeable drop in the services PMI adds to evidence that the surge in Covid-19 cases has caused the recovery to falter.”
Staffing was already causing problems but shortages grew more acute in July, creating wage pressures that “contributed to the fastest increase in overall input costs since the survey began in July 1996”, IHS said. Service sector companies also raised their prices “at a survey-record pace”.
Evidence that wages and prices are rising in tandem will pose a dilemma for the Bank of England, which announces its interest rate decision on Thursday. It has argued that inflation is largely transitory — in higher energy prices and components caught in supply chain disruptions — but has warned that a pick-up in wages could lead to more lasting price rises.
Severe staff shortages among night nurses and lorry drivers, for example, have forced employers to offer signing-on bonuses of as much as £10,000. Demand for jobs remained solid in July, the survey found, with problems caused by a lack of candidates.
Backlogs of work are continuing to increase, however, because companies are struggling to rebuild their capacity to meet demand “due to supply issues and lengthy wait times to fill vacancies”. The “pingdemic” was blamed for difficulties in meeting demand by hitting staffing levels.
“Job creation continued at a brisk pace in July, reflecting strong demand for staff across the service economy. However, the rate of employment growth slipped to a three-month low, which survey respondents often attributed to unexpected staff departures and delays with finding suitably skilled candidates,” IHS said.
“Wage pressures, higher fuel prices and greater transport bills were the most commonly cited factors pushing up input costs in July. The overall rate of inflation was the steepest since the survey began 25 years’ ago. A combination of rising input prices and stronger demand meant that service providers increased their average charges at a survey-record pace in July.”
Despite recruitment difficulties and rising prices, services companies remained “highly upbeat about their growth prospects for the year ahead”, IHS said. About 57 per cent expected business activity to expand and only 9 per cent anticipated a decline.