Staff shortages put handbrake on UK reopening boom as prices soar

·2 min read
Londoners enjoy outdoor restaurants and pubs in landmark Soho district of central London as Coronavirus restrictions start to ease and the economy start to pick up in London, England on April 27, 2021. The Prime Minister Boris Johnson has set a road map on easing the restrictions. English bar and restaurants can host people in their outdoors facilities.
Staff shortages was cited as one of the things creating a backlog of work in the UK services sector. Photo: PA

Staff shortages are putting the handbrake on the UK's dominant services sector, according to a closely-watch private sector survey, with the steepest rise in work backlogs since records began in 1996. 

IHS Markit and CIPS PMI survey of service sector business activity in June found capacity constraints and staff shortages meant unfinished business was piling up across the economy, stalling the UK's nascent reopening boom.

In spite of this, UK service providers reported another steep increase in business activity in June. The speed of recovery was only marginally slower than the peak seen in May. The service sector covers everything from coffee shops to banks and makes up roughly 80% of the UK economy.

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A rapid turnaround in business and consumer spending since the roll-back of pandemic restrictions led to the fastest rate of job creation for seven years, Markit said. But the surge in demand also prompted record increases in costs and prices last month.

The findings will fuel concerns about rising inflation in the UK. Outgoing Bank of England chief economist Andy Haldane last week warned price rises could hit 4% this year and said "everyone would lose".

"The latest survey data highlighted survey-record rates of input cost and prices charged inflation across the service sector, reflecting higher commodity prices, transport shortages and staff wages," said Tim Moore, economics director at IHS Markit.

"Imbalanced supply and demand was the main driver, while the roll-back of pandemic discounting by some service providers amplified the latest round of price hikes."

IHS Markit/CIPS's UK Services PMI Business Activity Index was 62.4 in June, down slightly from 62.9 in May. It was the second-highest reading since October 2013 and above the earlier 'flash' figure of 61.7 in June. 

PMIs are given on a scale of 0 to 100, with anything above 50 signalling growth. The index has posted above the 50.0 no-change value for four months in a row.

The average reading for the second quarter of 2021 (62.1) was the highest for any quarter in the past 24 years. 

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