UK recovery loses momentum as supply constraints hit output growth

According to the report from IHS Markit / CIPS, UK private sector companies experienced a sharp slowdown in output growth during August. 

At 55.3 in August, down from 59.2 in July, the headline seasonally adjusted UK Composite Output Index dropped for the third month running. The latest reading was still above the crucial 50.0 no-change threshold, but signalled the slowest expansion of output since the UK private sector returned to growth in March.

Weaker recoveries were seen in both the manufacturing and service sectors, with the latter recording the greatest loss of momentum since July. Analysis of comments provided by survey respondents suggested that incidences of reduced output due to shortages of staff or materials were fourteen times higher than usual and the largest since the survey began in January 1998.

New order growth eased only slightly in August, with stronger export sales helping to cushion a slower recovery in domestic demand. Resilient new business volumes contributed to another accumulation of unfinished work, although the latest rise in backlogs was the weakest since April.

August data pointed to the steepest rate of private sector job creation since the series began in January 1998, which was driven by a survey-record speed of hiring in the service economy. Extra recruitment was overwhelmingly attributed to the reopening of customer-facing parts of the service sector and efforts to replace staff that had departed at an earlier stage of the pandemic.

Inflationary pressures showed signs of easing in August, with input prices rising at the weakest pace for three months. However, many firms commented on higher wages due to tight labour market conditions. Severe shortages of raw materials and critical components also continued to push up purchasing prices, with UK goods producers signalling the sharpest overall downturn in supplier performance since April 2020.