The number of UK sectors reporting falling output has reached an 18-month high, with the transportation sector being hit the hardest, according to the Lloyds Bank (LLOY.L) UK Sector Tracker.
The transportation sector, which includes airlines, hauliers and rail operators, was impacted by national rail strikes and staff shortages, resulting in the fastest fall in activity of any sector monitored, to 37.7.
A reading on the Tracker above 50 indicates expansion, while a reading below 50 indicates contraction.
Nine of the 14 sectors monitored saw their output contract, the highest number since January 2021.
In addition, 10 sectors reported falling demand, representing the highest number since June 2020.
Jeavon Lolay, head of economics and market insight at Lloyds Bank Corporate and Institutional Banking, said: “Rising inflationary pressures are currently dampening activity and demand across the economy. This includes a consumer-led slowdown reflecting the fall in real incomes and ongoing supply constraints and staff shortages.
“However, more positively, while price pressures at the moment remain intense, it was encouraging that 13 of the 14 sectors monitored by the UK Sector Tracker reported a slower increase in input prices in July. This suggests that some of the underlying drivers of economy-wide inflation are subsiding. But for now, many firms will have little choice but to increase prices to help protect their margins.”
All but one of the 14 sectors reported a slower rise in input prices, up from seven in June, while nine reported a slower rise in prices charged to customers.
Of the seven manufacturing sub-sectors monitored by the Tracker, fewer supplier delivery delays were seen in five, up from four in June, and reports of higher material prices fell to their lowest level since February 2021.
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Scott Barton, managing director at Lloyds Bank Corporate and Institutional Banking, added: “It’s welcome news to see improvements in supply chain momentum and moderating price pressures for some sectors. However, operating conditions remain challenging, particularly when it comes to demand.
“In this environment, strong working capital is critical. Without adequate liquidity, businesses will find it more difficult to weather further downturns in trading conditions. Managing how much money is tied-up in the day-to-day costs of doing business is a key way to help deliver the financial flexibility they’ll need.”