Half of services firms report rising cost burdens

3 September 2021

Britain’s economic recovery lost momentum in August due to shortages of staff and raw materials, according to the latest PMI.

The IHS Markit/CIPS UK Services Purchasing Managers' Index fell to 55.0 in August, down from 59.6 in July and well below May's record high of 62.9. A reading of 50 signals neither contraction nor expansion.

The report found staff shortages and supply chain disruptions had constrained growth throughout August, and while the overall rate of inflation eased compared to July, it was the second-fastest rate of inflation seen over the past 25 years. 

Tim Moore, economics director at IHS Markit, said: “The service sector lost momentum for the third consecutive month as the impact of looser pandemic restrictions faded in August. Many businesses suffered constraints on growth due to staff shortages, self-isolation rules and stretched supply chain capacity.

"Tight labour market conditions pushed up wages as service sector companies sought to attract and retain employees. The overall rate of input cost inflation remained steep, but eased from the record high seen in July.” 

The survey found the rate of job creation surged higher than the previous record seen in June 2014, and worker shortages across industries led to steep increases in wages as companies battled to attract workers.

Around 44% of the survey panel reported an increase in overall cost burdens, while only 1% signalled a decline, with respondents reporting rises in wages, fuel bills and transport costs as the factors behind increased costs.

​​Duncan Brock, group director at CIPS, said: “The third consecutive monthly fall in growth in the services sector showed that a lack of staff and raw materials in August continued to rein back on recovery, after the spring surge. 

"Service businesses were particularly hit by lockdowns and the loss of workforces, so it was no surprise that the opening of the UK economy led to the fastest levels of job creation in the sector since July 1996. 

“Job seekers had the pick of the crop in terms of opportunities, but employers had to offer higher wages and more benefits to relieve the restrictions in operating capacity leading to another rapid rise in business costs. This in turn resulted in higher prices to customers and it’s difficult to say how long supply imbalances in the economy will persist.”

Brock argued supply shortages caused by Brexit and logistics difficulties would “pile on the pressure in the coming months”, but pointed out business optimism rose to a three-month high.

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