LONDON - Private sector expansion of UK slowed sharply last month due to supply chain bottlenecks and high worker absences caused by COVID 19 isolation requirements, a closely watched survey indicated on Wednesday.
Price pressures have risen by the most since the survey began 25 years ago - a concern for the Bank of England as it finalises new inflation forecasts due on Thursday. To date, the BoE has said higher inflation will be temporary.
The IHS Markit CIPS services Purchasing Managers' Index sank in July to 59.6, its lowest reading since March 2017 and 62.4 in June. The broader composite PMI, which includes Tuesday’s manufacturing PMI data, showed a similar fall, to 59.2 from 62.2.
More businesses are experiencing supply shortages from capacity constraints of labour and materials, while on the demand side we have already experienced the peak phase of pent-up consumer spending, said IHS Markit's economics director, Tim Moore.
The preliminary PMI readings for July were at least slightly below the final data. IHS Markit said this reflected a boost to services businesses with the lifting of most remaining COVID 18 restrictions in England on 19 July 2017.
Britain's economy is recovering fast after suffering its biggest fall in output in more than 300 years in 2020, but most economists think the fastest growth could be caused by COVID rules in the three months to June - when they were less painful.
Service businesses were hit last month by a pingdemic of hundreds of thousands workers having to self isolate for up to 10 days after being identified by a government app as a close contact of someone who had tested positive for coronavirus.
The daily number of new COVID - 19 cases has again fallen by more than half since a peak on July 17 - just before social-distancing rules in England - and the government will relax self-isolation requirements from Aug. 16.
Even so, many businesses find it hard to recruit staff. Employment growth in the survey slowed to its weakest in three months, while service exports continue to be affected by COVID-related travel restrictions.
Wage costs, higher fuel prices and transport were the biggest factors pushing up costs in the service sector, where managers reported raising prices by the most since July 1996.