Finance

‘Perfect storm’ of shortages takes steam out of UK’s Covid recovery


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resh fears that the UK economy is stalling emerged on Friday, with some in business claiming that a “perfect storm” of inflation, supply chain problems, and labour shortages is undermining the bounce-back from Covid.

After a decent summer as lockdowns ended, economies around the world now appear to be in retreat.

While the figures remain mostly positive so far, there seems little doubt that growth is slowing.

UK service providers signalled that August was the worst month for business activity growth since the current phase of recovery began in March. The PMI/IHS Markit index was 55 in August. Any number above 50 shows growth, but that was lower than expected.

Businesses note unexpectedly high levels of employee turnover, as well as absences due to Covid-19 isolation rules.

Duncan Brock at the Chartered Institute of Procurement & Supply, said: “The third consecutive monthly fall in growth in the services sector showed that a lack of staff and raw materials in August continued to rein back on recovery, after the spring surge. Service businesses were particularly hit by lockdowns and the loss of workforces.”

Darren Labbett, at Uxbridge-headquartered Woods Foodservice, told the BBC: “Price rises are due to pretty much a perfect storm of reasons… you’ve got the after effects of the pandemic, and the main reason for that is a lack of labour.”

James Bielby, who leads the Federation of Wholesale Distributors, said: “There are chronic staff shortages throughout the food and drink supply chain presently, with up to 500,000 vacancies.”

He added: “That means all businesses, growers, processors, wholesalers and manufacturers, having to offer incentives to retain and recruit staff, and costs are rising as a result.”

Record high natural gas prices could also rise further if the UK experiences a prolonged cold winter, according to British Gas owner Centrica.

There has been a more than 50% increase in energy costs over the last six months amid supply issues and increased inflation, Ofgem said.

Cassim Mangerah, of Centrica, said: “We haven’t seen a price situation like this before. If you can’t attract supply the only alternative is to cut demand to balance the market.”

In America, Goldman Sachs has slashed its forecast for GDP growth, as did Morgan Stanley, which says the US will grow at 2.9%.

General Motors is halting production at its North American plants due to a chronic semi-conductor chip shortage.

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