UK Markets close in 2 hrs 43 mins

Inflation and 'pingdemic' hobble UK's services rebound

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·Senior City Correspondent, Yahoo Finance UK
·2-min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
A shopping couple enjoy cool drinks at Caffe Concerto on Regent Street, on Covid 'Freedom Day', on 19 July, in London, England. Photo: Richard Baker/In Pictures via Getty Images
A shopping couple enjoy cool drinks at Caffe Concerto on Regent Street, on Covid 'Freedom Day', on 19 July, in London, England. Photo: Richard Baker/In Pictures via Getty Images

Growth in the UK's service sector slowed last month, as inflation soared and businesses struggled with staffing issues.

IHS Markit's latest purchasing managers index (PMI) recorded slowing growth and rising costs in Britain's dominant service sector last month. Staffing problems also hit services which covers everything from banking to waiting tables. 

The service sector — which accounts for around 80% of the UK economy — recorded its slowest growth since March, IHS Markit said. 

"Staff shortages, supply chain issues and the end of the full stamp duty holiday for residential property sales were cited as factors leading to a slowdown since June," the data company said.

Businesses struggled with staffing, as a tight labour market made recruitment difficult and the "pingdemic" left many employees unable to work. Over 1m people were "pinged" by the NHS COVID-19 tracing app and told to isolate last month.

"Many service providers commented on staff shortages due to COVID-19 isolation rules," IHS Markit said. "Anecdotal evidence also highlighted ongoing difficulties rebuilding business capacity due to supply issues and lengthy wait times to fill vacancies."

Staffing struggles led many employers to hike wages. Higher wages, combined with rising transport costs, helped to drive up business costs at the fastest pace in 25 years. Consumers prices also rose at a record pace, as businesses passed on rising costs to customers.

Read more: Mike Ashley 'to hand Sports Direct reins to future son-in-law'

"More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we've already seen the peak phase of pent up consumer spending," said Tim Moore, economics director at IHS Markit.

"Survey respondents cited worries about recruiting staff to meet business expansion plans and some suggested that escalating costs would hinder the recovery."

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "We suspect the best of the post-pandemic recovery could be behind us, especially if higher leisure and hospitality costs diminish appetite for consumer spending."

The data will fuel debate at the Bank of England over whether to remove COVID-era stimulus early. The central bank is still due to purchase tens of billions of pounds in bonds over the next few months in a bid to stimulate economic activity. Some policymakers believe that plan should now be ditched to stop the economy overheating. The Bank's Monetary Policy Committee delivers its latest decision on policy this Thursday.

Watch: What is inflation and why is it important?

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting