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July saw the UK economy's recent growth spurt hit by a rising
wave of virus infections, which subdued customer demand, disrupted
supply chains and caused widespread staff shortages, and also cast
a darkening shadow over the outlook.
Record expansion cools amid virus wave
The IHS Markit/CIPS flash composite PMI output index, covering
both services and manufacturing, fell further from its all-time
high of 62.9 in May, down sharply from 62.2 in June to 57.7 in
July.
Although the PMI remains elevated by historical standards,
indicating that business activity continued to grow strongly, the
decline in the index means the rate of expansion slowed to the
weakest since March
While growth was buoyed by the easing of lockdown restrictions
to the lowest since the pandemic began, July also saw widespread
reports of virus-related factors subduing customer demand,
disrupting supply chains and causing widespread staff
shortages.
The PMI therefore indicates that GDP growth will likely have
slowed again in the third quarter, after having rebounded sharply
in the second quarter, as the rising wave of Covid inflections
dampens economic activity once again.
Transport, hospitality and other consumer-facing services
companies were the hardest hit, though manufacturing also saw
growth slow markedly during July. Business and financial services
and the IT sector showed the greatest resilience.
Although the July flash survey only covered three days of the
full easing of Covid restrictions, any imminent re-acceleration of
growth in August looks unlikely due to a steep slowing in overall
new order growth during July.
Furthermore, concerns over the Delta variant overshadowed any
optimism associated with the passing of "freedom day", and were a
key factor alongside Brexit and rising costs behind a sharp slide
in business expectations for the year ahead, which slumped to the
lowest since last October.
Although average selling price inflation meanwhile eased
slightly during the month, the easing may prove short-lived, as
firms' costs rose at a rate unprecedented in over 20 years of
survey history. Supply shortages pushed up the price of goods,
suppliers of services hiked prices and employee pay continued to
rise.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
