Supply chain crisis ‘threatens to derail UK’s economic recovery’

·3-min read
 (PA)
(PA)

Britain's ongoing supply chain crisis threatens to choke off the country's recovery from the Covid pandemic, a leading business group is warning.

Supermarkets across the UK have been unable to stock some products in their stores due to a lack of lorry drivers caused by the impact of Brexit and the pandemic.

The British Chambers of Commerce (BCC) a major business group, said the UK could see a sharp downturn in economic growth in the coming months.

The group recently slashed its forecast for third-quarter growth to 2.8 per cent, down from 3.5 per cent. It added that growth - which stood at 4.8 per cent in the second quarter - is predicted to ease back further to 1.6 per cent between October and December.

Supply chain disruption, staff absence and hiring difficulties are offsetting the boost from July's full lifting of coronavirus restrictions.

Suren Thiru, head of economics at the BCC, said the group's latest forecast "points to a loss of momentum in the coming months as staff shortages, supply chain disruption and rising cost pressures limit output from many sectors".

He warned: "A prolonged period of acute supply and staff shortages could derail the recovery by forcing firms into a more permanent reduction in their operating capacity, eroding their ability to fulfil orders and meet customer demand."

Mr Thiru added: "There is a real danger the national insurance increase announced this week could stifle the recovery. Any further tax changes could very well prolong the economic damage from Covid."

The BRC also claimed there was a "real danger" the government's health and social care levy, passed by the Commons on Wednesday night, could further stifle the economic bounce-back from the pandemic.

A prolonged period of acute supply and staff shortages could derail the recovery by forcing firms into a more permanent reduction in their operating capacity, eroding their ability to fulfil orders and meet customer demand.

Official figures to be published on Friday are expected to show a slowdown in growth over July, with most economists pencilling in 0.5 per cent expansion, down from 1 per cent in June.

The UK is still set to see the strongest growth since official records began in 1949 as a whole over 2021, with gross domestic product (GDP) set to expand by 7.1 per cent, followed by growth of 5.6 per cent in 2022, according to the BCC.

But it said the lorry driver shortage, global supply issues and wider recruitment troubles are set to hamper the rebound and mean the economy will only return to its pre-pandemic level in the first quarter of 2022.

The BCC said that despite the economic rebound, business investment is expected to decline by 2.5 per cent this year, which could be the "weak point of the recovery because it undermines the UK's ability to raise productivity and increase our long-term growth prospects".

It also echoed recent forecasts from the Bank of England that surging inflation is set to peak at 4 per cent in the fourth quarter and said interest rates are likely to start rising at the end of 2022 with a second due a year later.

Additional reporting by Press Association

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