UK business activity at four-month low due to staff shortages amid ‘pingdemic’ – as it happened

Julia Kollewe

from on 2021-07-23 14:09 (#5MGFV)

3.09pm BST

Time to wrap up for the day (and the week). Stock markets in Europe and the US are pushing higher, as the recovery from Monday's sell-off continues. The Australian market closed at a record high.

Closely-watched industry surveys from IHS Markit have shown a slowdown in private sector growth in the US and UK, while business activity in the eurozone hit a 21-year high. In the US, manufacturing hit a record high while services slowed. In both the UK and the US shortages of materials and workers have hampered the economic recovery.

2.54pm BST

Chris Williamson, chief business Economist at IHS Markit, says:

The provisional PMI data for July point to the pace of economic growth slowing for a second successive month, though importantly this cooling has followed an unprecedented growth spurt in May. Some moderation of service sector growth in particular was always on the cards after the initial reopening of the economy, and importantly we're now seeing nicely-balanced strong growth across both manufacturing and services.

While the second quarter may therefore represent a peaking in the pace of economic growth according to the PMI, the third quarter is still looking encouragingly strong.

2.53pm BST

The US PMI indices are out, and show a weakening in business activity in July. Similar to the UK, private sector growth slowed to a four-month low. Manufacturers ramped up production to record levels but the services industries suffered a slowdown to a five-month low.

The overall rate of growth in the US private sector eased for the second month running to the softest since March, as firms continued to report widespread capacity constraints.

US

|| Markit Composite PMI (Jul) ||
59.7 (Actual)
63.7 (Previous)

|| Markit Manufacturing PMI (Jul) ||
63.1 (Actual)
62.0 (Forecast)
62.1 (Previous)

|| Markit Services PMI (Jul) ||
59.8 (Actual)
64.8 (Forecast)
64.6 (Previous)

2.34pm BST

On Wall Street, the opening bell has rung and US stocks have risen further, helped by strong results from Twitter and Snap, after reaching record highs yesterday. The Nasdaq closed at a new all-time peak while the S&P 500 just fell short.

1.29pm BST

The UK aerospace defence group Cobham has made a 2.6bn offer to buy London-listed Ultra Electronics, which said it was considering recommending the bid to shareholders.

This sent shares in Ultra, which counts the UK and US governments among its customers, up as much as 34% to a record high of 33.18. That's below Cobham's offer price of 35 plus a dividend of 16.2p a share. It improved its bid from 28 a share in June, when it talked of creating a global defence electronics champion"..

1.20pm BST

Oil prices have just stabilised after earlier declines and are broadly flat, at $73.30 a barrel for Brent crude, and $71.97 a barrel for US light crude.

Oil is on track to end the week little changed from the previous week following three weekly declines. It has staged a remarkable recovery from Monday's 7% sell-off, as traders are betting that supply with stay tight as demand recovers.

12.38pm BST

Here is our full story on the slowdown in UK business activity, which has triggered concerns that the economic recovery is stalling.

Whilst the use of PMIs as absolute measures of monthly activity remains dubious at present, the pullback in UK PMI to a 4-month low in July (57.7) does tally with broader signs of slowing economic momentum. Eurozone PMI still pushing higher & above UK for first time since January pic.twitter.com/m4iGj1Lvvv

11.57am BST

On the markets, shares are pushing higher.

While the eurozone PMI composite came out higher than expected in July 60.6 (vs 60 estimated) and rising for the fifth consecutive month, PMI in the UK fell considerably and unexpectedly to 57.7 from 62.2 in June, compared to the consensus of 61.5.

On the UK side, the economic recovery has been stronger due to the success in its vaccination programme and new daily Covid-19 cases have been coming in lower during the past few days. However, it will be important to see if this is sustained in the long run given the reopening could help to spread the virus more rapidly.

10.31am BST

Let's have a look at today's other main stories.

The football European Championship and England's run to the final helped UK retail sales increase by 0.5% in June, according to official figures.

10.20am BST

Hugh Gimber, global market strategist at JP Morgan Asset Management, says rising business costs are likely to be passed on to consumers in the months ahead. Unilever talked about this yesterday:

The UK economy remains on the road to recovery, but the path ahead is becoming bumpier.

Supply bottlenecks are the limiting factor on activity, and appear largely to blame for today's PMI data failing to meet expectations. While activity remains strong, businesses are struggling to fill job vacancies and shortages of raw materials are starting to bite. The result is clear, with average business costs rising at the fastest pace on record. We expect many of these price increases to be passed onto consumers in the coming months, putting upward pressure on inflation in the near term.

10.13am BST

James Smith, developed markets economist at ING, has crunched the UK PMI numbers.

The latest UK purchasing managers indices, while still healthy, hint at an economic recovery that's stalling as Covid-19 cases rise. We're still expecting a positive third-quarter growth figure in the region of 1.5%, though clearly further progress towards pre-virus levels relies on prevalence falling back once more.

Despite the rise in self-isolation rates over recent weeks, the effect on confidence has been less pronounced than we'd have expected - so far anyway.

10.10am BST

He adds:

Concerns over the Delta variant have meanwhile overshadowed 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.

The PMI indicates that GDP growth will likely have slowed in the third quarter, after having rebounded sharply in the second quarter.

UK economic growth slowed for a 2nd month running in July https://t.co/nnj45AVP63, contrasting with a 21-year high in the eurozone https://t.co/9mktuvkfah, according to the flash #PMI surveys from @IHSMarkitPMI.

Eurozone PMI now above that of the UK pic.twitter.com/1jx0vrlhkz

10.09am BST

Chris Williamson, chief business economist at IHS Markit, says about the slowing in UK business activity to a four-month low this month:

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. Although business activity continued to grow, aided by the easing of lockdown restrictions to the lowest since the pandemic began, the rate of expansion slowed sharply to the weakest since March.

Transport, hospitality and other consumer-facing services companies were the hardest hit, though manufacturing also saw growth weaken markedly during the month.

10.06am BST

A limited number of critical workers will be allowed to avoid self-isolation, as supermarket shelves empty raising fears of food shortages, while other areas including hospitals and transport have also been hit, report Richard Partington, Jessica Elgot and Sarah Butler.

Workers from 16 key sectors including health, transport and energy will not have to isolate after being pinged by the NHS Covid app, as it was revealed that more than 600,000 people in England and Wales were sent self-isolation alerts last week.

9.42am BST

As IHS Markit explains:

Where growth was reported, this was attributed to looser pandemic restrictions, a boost to consumer spending from staycations, rising demand for business services, and strong order books in the manufacturing sector. Those signalling a drop in output mostly commented on severe shortages of raw materials and the impact of Covid-19 isolation on staff availability (some also cited extended absences as employees took up unused holidays).

9.34am BST

UK private sector growth has fallen to four-month low as shortages of staff and materials hampered the economic recovery in July, according to a closely watched survey from IHS Markit.

The speed of recovery was the weakest since March, with firms polled widely reporting staff and raw material shortages, partly due to the pingdemic" caused by a huge number of healthy workers self-isolating after being pinged" by NHS test and trace. Concerns about the loss of momentum contributed to the lowest degree of optimism towards the business outlook for nine months.

UK July Prelim Markit Manufacturing PMI Report - IHS Markit
IHS Markithttps://t.co/IKCEIBjTg7 pic.twitter.com/BGZK50ULkR

9.32am BST

Bert Colijn, senior eurozone economist at ING, says:

Better than expected PMIs confirm the strong rebound expected for the third quarter, as reopening services make up for the slight decline in manufacturing output due to supply chain problems. Inflation pressures persist, forcing a dovish European Central Bank to remain on its toes for the autumn meeting.

The PMIs once again confirm significant pipeline inflation pressures, especially for goods. Of course, the ECB will consider this transitory as it has said before but expect the debate to become more heated in the months ahead when a decision needs to be made about the end of the PEPP [asset purchase] programme.

9.09am BST

Business activity in the eurozone grew at the fastest rate for 21 years in July as the economy continued to reopen from Covid-19 restrictions. The strongest rise in service sector activity for 15 years was tempered, however, by a slowing in manufacturing output growth, linked in many cases to worsening supply lines.

And business confidence was knocked by rising concerns over the Delta variant, pushing sentiment for the year ahead to a five-month low.

Near-record growth seen across the #eurozone in July, as the latest flash #PMI rose to a 21-year high of 60.6 (June: 59.5) amid the strongest rise in service sector activity since 2006. Read more: https://t.co/z7DZzHfktj pic.twitter.com/hq17yK71d8

8.37am BST

The recovery in the German private sector picked up further this month, with the Markit PMI survey's headline index reaching a record high in July. Buoyed by strengthening demand and growing capacity pressures, firms took on staff at an unprecedented rate during the month.

8.19am BST

The July flash France PMI survey from IHS Markit signalled sustained recovery at the start of the third quarter, with private sector activity registering another strong month-on-month expansion.

Growth was spurred on by further intakes of new business, which grew at one of the fastest rates seen in over three years. Service sector output growth continued to surpass that seen in the manufacturing sector amid looser lockdown restrictions. That was in spite of a faster increase in goods production.

It's perhaps slightly disappointing to see the headline composite output figure dip slightly in July, but as the French economy normalises to a state of looser lockdown restrictions, it is not so much of a surprise. Regardless, the PMI pointed to another strong month-on-month rate of output growth, with service providers outperforming their manufacturing counterparts once again.

8.09am BST

European stock markets have risen at the open, taking their cue from Wall Street, where the Nasdaq hit a fresh record high yesterday.

8.06am BST

James Smith, developed markets economist at ING, says the UK retail sector is in fairly good health, all things considered".

Sales are 9% above pre-virus levels, though June saw spending dip on non-essentials. We suspect this reflects a switch in consumer priorities as services reopen... The outlook for retailers is best described as solid but unexciting'.

Further gains in sales may be trickier to achieve, despite a recovery in consumer confidence and the large pool of involuntary savings. The latter, it's worth remembering, is more heavily concentrated among higher earners who are less likely to spend the lockdown savings. Meanwhile, lower-income earners, who are more likely to have seen savings fall through the pandemic, will be disproportionately hit by the rise in inflation and are more exposed to possible redundancies as the furlough scheme comes to an end in the autumn.

Modest 0.5% overall rise in UK retail sales in June, but more under the surface:
Food and drink sales +4.2% due to Euro 2020 (biggest rise since March 2020)
Clothing sales -4.7% (biggest fall since Feb)
Household goods -10.9%
Online sales lowest since March 2020

7.37am BST

By value, and excluding automative fuel, retail sales were up 12.1% compared with February 2020, the last normal month before the coronavirus pandemic started.

Lisa Hooker, consumer markets leader at the consultancy PwC, says:

Headline growth masks declines in other non-food categories, with household goods sales suffering their first non-lockdown driven decline since the start of the pandemic, as people started to spend more time out of the home; and sales in the hardest-hit clothing category again slipping below pre-pandemic levels.

So the post-pandemic retail recovery will likely remain fragile for the rest of the summer, as government support schemes begin to wind down, and the booming grocery sector sees operational and supply challenges from the current pingdemic'.

Retail set to provide a strong boost to Q2 UK GDP:

Retail sales up 12.2% in 3m/June 2021 - strongest outturn since last year's reopening of the economy in the 3m/Sept -20.

Strong pick-up in non-food retailers (35.8%) & fuel sales (23.6%) in the 3m/June 2021.

7.33am BST

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has looked at the outlook for UK retail sales and strikes a pessimistic note.

Retail sales probably will fall back over the coming months.

The temporary boost to food spending from Euro 2020 will fade, while higher confidence does not appear to be translating to higher levels of economic activity, due to the recent rise in Covid-19 cases. Indeed, footfall at retail locations has trended down recently and last week was 75% of its level two years ago, down from the peak of 86% in the first week of June, according to Springboard.

UK retail sales outstrips expectations due to the increase in food store sales because of the Euros. Excluding food store sales (which rose by 4.2%) retail sales contracted in June. This transitory boost won't be enough to move markets, evidenced by GBP's lacklustre reaction.

7.25am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Retail sales in the UK staged a small recovery in June, rising 0.5% from the previous month, when sales fell 1.4%, due to a surge in people going out as bars, pubs and restaurants reopened indoors. The reading is slightly better than the 0.4% gain predicted by economists.

In the face of headwinds from the Delta variant of the Covid-19 virus, the global economic expansion is moving forward - albeit more tentatively than a month ago. Outlooks in advanced countries with high vaccination rates reman bright, but near-term prospects in emerging and developing countries with low vaccination rates are murkier.

The recovery from the Monday sell-off continued apace yesterday, with the FTSE-100 being the notable party pooper ... while the rest of Europe closed higher for the third day in succession.

US markets, and in particular tech stocks led the way, with the Nasdaq 100 closing at a new record high, with the S&P 500 just falling short. This positive finish should translate into a higher European open despite a weaker Asia session, and with Japanese markets closed.

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