UK COVID rebound stalls amid recruitment and supply chain issues

The number of UK sectors reporting output growth fell to a six-month low in August, as the impact of labour shortages intensified.

According to the latest Lloyds Bank UK Recovery Tracker, nine of 14 UK sectors saw output rise during August, down from 12 in July and the lowest number since February when the UK was still in lockdown.

Labour shortages and supply chain disruption caused the output of UK transport (42.9) businesses, chemicals (45.0), and metals and mining (47.9) manufacturers to each fall for the first time in six months.

A reading above 50 signals output is rising, while a reading below 50 indicates contraction.

The output of transport firms was most acutely affected by recruitment challenges. Firms said their ability to complete orders was significantly reduced by a UK-wide shortage of haulage drivers.

The chemicals and metals and mining sectors also saw a contraction in output, as both sectors experienced longer supplier delays compounding the impact of raw materials shortages and supply chain disruption in overseas markets.

Read more: Northern Line's £1.1bn extension adds two brand new tube stations

Overall, the haulage driver shortage combined with global supply issues caused UK manufacturing sector lead times to lengthen to the greatest extent since the peak of the pandemic in April 2020.

However, the number of UK sectors that recorded stronger output growth month-on-month increased from four to five during August due to the strong performance of consumer-facing services businesses.

The output index for tourism and recreation firms was 61.7 in August compared to 55.3 in July and food and drink manufacturers rose to 53.7 in August from 45.6 in July, with the two sectors seeing the sharpest rises month-on-month.

Tourism and recreation benefitted from the popularity of UK based breaks during peak holiday season and the change to COVID-19 restrictions, allowing fully vaccinated employees and customers to forgo self-isolation if they test negative for the virus.

The output of food and drink manufacturers returned to growth, after contracting in July, due to firms experiencing increased orders from the hospitality sector and fewer employees needing to self-isolate.

“Manufacturers are already facing into a challenging environment," said Jeavon Lolay, head of economics and market insight, Lloyds Bank Commercial Banking. "Key import markets are still struggling with the delta variant and vaccination rates, contributing to significant supply side delays.

"And, while input costs did fall slightly last month, the rate of inflation is still in record territory, and points to a further pick up in UK CPI inflation in the coming months.”

Read more: 'Baby shortage' could mean economic stagnation for UK

Meanwhile, input cost inflation eased for the first time since January. Reduced price pressures were seen in eight of the 14 sectors monitored by the Tracker during August, up from 7 in July and just four in June.

Manufacturing sectors, including metals and mining, automobiles and auto parts, and industrial goods, cited lower commodity prices for the easing of cost inflation, with falls in the price of key inputs, such as oil, iron ore, and chemicals.

However, the overall rate of cost inflation was still the third highest in the Tracker’s history, as UK firms continued to experience materials shortages and higher wage costs driven by recruitment challenges.

Watch: What is inflation and why is it important?