Economy: UK growth slows to ‘crawl’ amid shortages, retail sales plummet

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Private sector growth in the UK has slowed to its weakest pace since lockdowns in early 2021 amid staff and equipment shortages and weaker demand, a key survey reveals.

Meanwhile, official figures show a further drop in retail sales in Britain in June.

The Chartered Institute of Procurement & Supply and S&P Global flash composite production PMI (purchasing managers’ index) index fell to 52.8 this month on a seasonally adjusted basis. The figure is down from 53.7 in June and signals the weakest expansion of combined private sector services and manufacturing activity in the current 17-month period of growth. A reading over 50 is considered an expansion signal.

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The survey points to another solid increase in private sector employment this month, although it signals the smallest increase in 16 months, with some companies reporting that worries about the outlook and labor shortages work led to the non-replacement of departures.

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Although the headline rate of input cost inflation has come down significantly to a 10-month low, “intense” wage pressures have been reported amid the UK’s cost of living crisis. Annual consumer price index inflation in the UK reached 9.4% in June.

CIPS and S&P Global said: “Survey respondents often commented on falling commodity prices and a stabilization in fuel costs, but there were still widespread reports citing intense wage pressures. Some companies noted that the depreciation of the exchange rate against the US dollar had increased their purchasing costs in July.

The survey signals easing cost pressures for raw materials, especially metals.

However, CIPS and S&P Global said: “Service providers primarily noted that intense wage pressures from staff shortages and rising consumer price inflation continued to weigh on their cost burdens. ”

Assessing the overall employment situation, they added: “Higher employment levels have been driven by efforts to reduce backlogs and rebuild business capacity after cuts during the pandemic. However, some companies have reported that candidate shortages and concerns about the demand outlook have led to quits not being replaced.

Chris Williamson, chief economist at S&P Global Market Intelligence, said: “UK economic growth slowed in July, registering the slowest expansion since the shutdowns in early 2021. Although not still declining, with pent-up demand for consumption-oriented vehicles and services such as travel and tourism helping to support growth in July, the PMI is now at a level consistent with GDP (gross domestic product) growth of only 0.2%.

“Forward-looking indicators suggest the worst is yet to come. Manufacturing order books are now deteriorating for the first time in a year and a half as there are insufficient new job entries to keep the workforce busy, which is usually a precursor to production and layoffs. jobs in the months to come. Commodity purchases have already fallen and hiring has slowed as companies reassess their needs for the coming months in the face of deteriorating demand conditions.

He added: “The problem is that rising interest rates, as the Bank of England seeks to control inflation, will further weaken demand growth in the months ahead. Raising interest rates at a time when business growth is this weak is unprecedented in the last quarter century of the survey’s history.

UK base rates were raised to 1.25% from 0.1% at the end of last year, with further increases expected by economists and financial market participants.

Seasonally adjusted figures released yesterday by the Office for National Statistics show retail sales volumes in Britain fell 0.1% month-on-month in June. This followed a 0.8% decline in May. The May drop was estimated last month at just 0.5%.

The non-store retail category, primarily online retailers, saw a 3.7% month-on-month drop in sales volumes in June. Clothing stores reported a 4.7% month-over-month drop in sales volumes. Motor fuel sales volumes fell 4.3% in June, with the ONS noting that retailers had suggested ‘the fall was linked to record petrol and diesel prices impacting the amount of fuel that people were buying”.

Food sales volumes rose 3.1% month-on-month in June, with the ONS saying retailers confirmed ‘the increase in sales was due to the Queen’s Jubilee celebrations “.

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