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UK service sector growth slows amid staff shortages and supply chain disruption

·Contributor
·3-min read
A waitress wearing a face covering serves diners at outside tables in Kensington, London, as the government continues to monitor coronavirus infection levels ahead of potential end to covid restrictions on July 19th. Picture date: Tuesday June 29, 2021. (Photo by Dominic Lipinski/PA Images via Getty Images)
Staff recruitment picked up to its strongest since the survey began in July 1996 as businesses sought to rebuild workforce numbers 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 shortages of staff and supply chain disruptions, new data showed on Friday. 

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

This was also lower than the 59.6 recorded in July. 

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

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, 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.”

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

Staff recruitment picked up to its strongest since the survey began in July 1996, the data showed, as businesses sought to rebuild workforce numbers in response to rising sales.

Due to the competitive labour market conditions, however, there was a steep climb in wage pressures during August.

The overall rate of cost inflation eased since the previous month, but was the second-fastest seen over the past 25 years, IHS Markit said.

Business optimism also climbed to a three-month high. The proportion of survey respondents expecting an expansion (60%) far exceeded those forecasting a decline (8%).

Meanwhile, new business volumes eased from the previous months' levels, with businesses blaming the end of the stamp duty holiday and a subsequent cooling in demand for housing.

Lower export orders, a lack of tourism and Brexit trade friction were also factors.

Read more: European stock markets subdued as China services sector shrinks

Tim Moore, economics director at IHS Markit, which compiles the survey, 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.”

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

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

The reading dropped to 59.0 last month, from July's 15-year high of 60.2, but this was well above the 50 mark separating growth from contraction. It did come in below a 59.5 flash estimate.

"It was another solid result for euro area businesses in August," said IHS Markit senior economist Joe Hayes.

"Another strong quarter-on-quarter rise in GDP is on the cards for the third quarter, and we're certainly on track for the eurozone economy to be back at pre-pandemic levels by the end of the year, if not sooner."

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