UK services growth slowed down by rising costs and labour shortages, new data for July shows

Thu 5 Aug 2021
Posted by: William Barns-Graham
Trade News

Growth in British services slowed in July as rising costs and labour shortages took their toll, following the same trend as manufacturing.

Figures from the monthly purchasing managers’ index (PMI) by IHS Markit and the Chartered Institute of Procurement & Supply (CIPS) showed firms were struggling with the impact of the ‘pingdemic’, which has recently seen more than 500,000 people a week told to self-isolate.

The PMI for July was 59.6, down from 62.4 in June. Anything above 50 indicates growth.

Post-pandemic

Services, which make up 80% of the economy, slipped to their weakest performance since March.

Samuel Tombs, at consultancy Pantheon Macroeconomics, told the Times: “The sizeable drop in the services PMI adds to evidence that the surge in Covid-19 cases has caused the recovery to falter.”

Wage pressure

Staff shortages have resulted in wage costs increasing, contributing to the fastest increase in input costs since the survey began in 1996.

Services have been affected by a range of other factors in the last month, reports the Guardian, from hospitality shortages due to 93,000 EU workers leaving the UK after Brexit, to extreme weather and self-isolation curtailing shopping visits following Freedom Day.

Services trade down

According to IGD.com, UK trade in services fell sharply in 2020, with both exports and imports affected.

Service exports to EU and non-EU destinations both fell, but it is unclear whether Covid or Brexit shoulders the majority of the blame, it reports.

The recent data deal between the EU and UK may also point towards a willingness to “create a mutually-beneficial working relationship,” it says.

ONS figures show that, in Q1 2021, total service exports decreased by 11.7% compared with pre-pandemic levels in Q1 2019.

However, there were bright spots. Exports of legal, accounting and management services to non-EU countries increased in Q1 2021 compared with 2019, driven by trade with the US.