Britain’s rapid economic bounce-back from the Covid-19 pandemic slowed sharply in July as a new wave of cases forced hundreds of thousands of workers to self-isolate under government rules to limit the spread of the disease.
Supermarkets and hauliers say staff shortages are making it hard to restock shelves and deliver goods, and Friday’s monthly purchasing managers’ index (PMI) data gave the first clear evidence of the scale of the impact.
The IHS Markit/CIPS flash composite PMI dropped to 57.7 in July from 62.2 in June. A reading above 50 indicates growth in the economy but the reading was the lowest since March and a sharper fall than most economists had forecast in a Reuters poll.
“July saw the UK economy’s recent growth spurt stifled by the 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,” Chris Williamson, chief business economist at IHS Markit, said.
The economy was still on course to expand in the third quarter, but at a slower pace than before, he added.
The British PMI contrasted with the one for the euro zone, which struck its highest since July 2000, and sterling extended losses after the data.
Britain’s economy has rebounded after its nearly 10 per cent slump in 2020 when the country suffered one of the world’s heaviest Covid-19 death tolls and was locked down for longer than many other European nations.
But reopening has created bottlenecks and inflation pressures. Two Bank of England policymakers have suggested an early end to the BoE’s bond-buying stimulus.
Friday’s PMI data showed a record rise in businesses’ costs and a near-record increase in the prices they charged.
However, the weaker-than-expected activity figures are likely to make other policymakers wary of scaling back support next month. The BoE is due to announce its next policy decision on August 5.
“Given today’s numbers, the uncertainty around the Delta variant and the impact of the end of the Job Retention Scheme from September, we expect the Bank to stick to its current course,” Willem Sels, chief investment officer at HSBC’s wealth management division, said.
