Fewer UK sectors grow as staff shortages bite

21 September 2021

  • Nine out of 14 UK sectors reported output growth in August, down from 12 in July, marking the lowest number since February when the UK was still in lockdown.
  • Transport, metals and mining and chemicals sector output fell for the first time in six months due to the UK-wide shortage of haulage drivers.
  • Five sectors posted faster month-on-month output growth, up from four in July, led by food and drink and tourism and recreation.
  • Input cost inflation eased for the first time since January.

The number of UK sectors reporting output growth fell to a six-month low in August, as the impact of labour shortages intensified, according to the latest Lloyds Bank UK Recovery Tracker.

Nine of the 14 UK sectors monitored by the Tracker saw output rise during August, down from 12 in July and the lowest number since February when the UK was still in lockdown.

Labour shortages and supply chain disruption caused the output of UK transport (42.9) businesses, chemicals (45.0) and metals and mining (47.9) manufacturers to each fall for the first time in six months. A reading above 50 signals output is rising, while a reading below 50 indicates contraction.

The output of transport firms was most acutely affected by recruitment challenges. Firms said their ability to complete orders was significantly reduced by a UK-wide shortage of haulage drivers. 

The chemicals and metals and mining sectors also saw a contraction in output, as both sectors experienced longer supplier delays compounding the impact of raw materials shortages and supply chain disruption in overseas markets. 

Overall, the haulage driver shortage combined with global supply issues caused UK manufacturing sector lead times to lengthen to the greatest extent since the peak of the pandemic in April 2020. 

Consumer-facing businesses drive recovery 

However, the number of UK sectors that recorded stronger output growth month-on-month increased from four to five during August due to the strong performance of consumer-facing services businesses. 

The output index for tourism and recreation (61.7 in August versus 55.3 in July) firms and food and drink manufacturers (53.7 in August versus 45.6 in July) rose most sharply month-on-month.   

Tourism and recreation benefitted from the popularity of UK based breaks during peak holiday season and the change to COVID-19 restrictions, allowing fully vaccinated employees and customers to not have to self-isolate if they test negative for the virus. 

The output of food and drink manufacturers returned to growth, after contracting in July, due to firms experiencing increased orders from the hospitality sector and fewer employees needing to self-isolate.  

Record inflation eases for the first time since January 

Meanwhile, input cost inflation eased for the first time since January. Reduced price pressures were seen in eight of the 14 sectors monitored by the Tracker during August, up from 7 in July and just four in June. 

Manufacturing sectors, including metals and mining, automobiles and auto parts and industrial goods, cited lower commodity prices for the easing of cost inflation, with falls in the price of key inputs, such as oil, iron ore and chemicals. 

However, the overall rate of cost inflation was still the third highest in the Tracker’s history, as UK firms continued to experience materials shortages and higher wage costs driven by recruitment challenges. 

Jeavon Lolay, Head of Economics and Market Insight, Lloyds Bank Commercial Banking, said: “Labour availability is critical to the UK’s recovery from COVID-19. August’s data shows how staff shortages in one sector have a ripple effect across the whole economy. The lack of haulage drivers pushed transport sector output into contraction for the first time in six months, with manufacturers that rely on logistics firms to deliver key inputs unable to complete their orders as a result.

“Manufacturers are already facing into a challenging environment. Key import markets are still struggling with the delta variant and vaccination rates, contributing to significant supply side delays. And, while input costs did fall slightly last month, the rate of inflation is still in record territory, and points to a further pick up in UK CPI inflation in the coming months.” 

Scott Barton, Managing Director, Corporate and Institutional Coverage, Lloyds Bank Commercial Banking, said: “The sectors most acutely affected by labour market pressures shifted in August. While manufacturers had to contend with the fallout of haulage driver shortages, the relaxation of self-isolation rules meant consumer-facing services businesses and food and drink manufacturers were able to take full advantage of summer demand after struggling with staffing in July.

“What’s clear is that the UK job market remains in a period of flux. Businesses across every sector need to give greater attention to their hiring and staff retention policies to maintain growth.”