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UK firms hit by record cost inflation as rapid growth cools slightly

·3-min read

UK firms have been hit by record inflationary pressures this month as new figures showed the private sector saw its strong growth in activity cool off only slightly this month from May’s record levels.

The closely-followed IHS Markit/CIPS Flash UK Composite PMI report came in at 61.7, down from a reading of 62.9 last month.

Any score above 50 represents growth and the reading still represents one of the highest monthly growth rates since 1998, despite the decline.

The flash figures are initial data for June and fuller data which includes the whole month will be released in July.

June’s initial reading was below the estimates of analysts, who had predicted another 62.9 reading for the month.

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Soaring demand and supply chain disruption meant that input cost inflation accelerated for the fifth month running to the joint-fastest on record, the report added.

Chris Williamson, chief business economist at IHS Markit, said: “Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound very sharply from the first quarter’s decline.

“There are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May’s record performances, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.”

The latest report showed strong growth in the services sector driven by the loosening of Covid-19 restrictions last month and increased demand, particularly for hospitality.

New orders and total activity both substantially grew in June in the services industry, although this was again marginally below May’s record reading.

Elsewhere, the flash manufacturing reading also dipped marginally, from 65.6 last month to 64.2, representing the second-strongest growth since 1992.

The expansion of output and new orders also resulted in “elevated” job creation, although pressure on the supply chain also mean that “backlogs of work increased substantially again”, according to surveyed firms.

The rise in demand and severe supply chain disruption caused by the pandemic also sparked a rise in inflation.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply (CIPS), said: “As materials were increasingly hard to come by, they once again became more expensive.

“Record cost inflation last seen in 2008 filtered through to increasing output costs as manufacturers were unable to absorb these rapid rises any longer.

“In service businesses, consumers were hit with considerably higher prices for food and hospitality, increasing the threat of soaring inflation in the UK economy this summer.”

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