Staff Shortages And Rising Input Costs Slow Pace Of UK Economic Growth

The tourism and recreation sector, which includes pubs and restaurants, saw its output growth ease as staff shortages and rising input costs slowed the pace of the UK economic recovery in July. A total of 12 of 14 UK sectors reported faster output growth month-on-month in July, down by two on June, and the lowest since March, according to the latest Lloyds Bank UK Recovery Tracker.

The tourism and recreation sector saw its growth rate ease, falling to 55.3 from 63.1 in June – a level that was the strongest output growth recorded since January 2012. Businesses pointed to a levelling-off in forward bookings for UK holidays, and cited restricted capacity caused by staff shortages – a key challenge also reported by firms in transportation (51.5 versus 51.8 in June), particularly among hauliers.

A reading above 50 signals output is rising, while a reading below 50 indicates output is contracting. Higher wage costs, driven by recruitment challenges, and increases in the prices of key inputs such as electronics, metals, steel and timber, contributed to a record pace of input price inflation in July. Input costs rose for all 14 sectors monitored by the Tracker, with the composite input prices index registering 76.3 – the highest since the series began in January 1998.

As a result, prices charged by businesses also increased at the fastest rate on record. All 14 sectors reported a price hike, with metals and mining, chemicals and household products posting the sharpest increase. UK sectors’ future output expectations dipped in July, to their weakest since January. Ten of the 14 sectors were less optimistic than they were in June about achieving stronger output volumes over the next 12 months.

Jeavon Lolay, Head of Economics and Market Insight, Lloyds Bank Commercial Banking, said: “Official data confirmed the rapid pace of UK economic growth in the second quarter as indicated by the Recovery Tracker in recent months. As the economy edges back towards pre-pandemic GDP levels, there will understandably be less capacity for such rapid and out-sized gains. The latest report for July supports this, with both fewer sectors posting faster month-on-month growth in output and a marked drop in optimism around future growth prospects.

“Another important area to closely monitor is the ongoing impact of surging input and output prices. It is clear that many businesses are facing growth constraints due to ongoing disruptions to supply chains and shortages of labour. These pipeline issues represent early indicators of the potentially broader inflationary pressures to come. While UK annual CPI inflation slowed in July, this will likely prove a temporary respite, particularly if businesses continue to face further price pressures.”