By Kristy Dorsey

Growth across the UK’s private sector slowed sharply last month amid shortages of labour and materials, while the peak phase of pent-up consumer spending also appears to have passed.

There was an increase in business activity across the dominant services sector for the fifth month running, but the rate of growth was the weakest since March. According to the IHS Markit/CIPS Purchasing Managers’ Index (PMI), services sector activity fell to 59.6 in July, down from 62.4 in June.

The broader composite PMI, which includes data from the manufacturing sector, showed a similar drop to 59.2 from 62.2. Anything above the 50.0 mark indicates growth.

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Labour shortages led to greater wage pressure across the service sector, contributing to the biggest increase in input costs since the survey began 25 years ago. Prices charged also rose at a record pace.

Tim Moore, economics director at IHS Markit, said the full easing of pandemic restrictions in England on July 19 appeared to limit the overall loss of momentum towards the end of the month.

“Any re-acceleration of growth in August looks unlikely, however, as new orders increased at a much-reduced pace at the start of the third quarter,” he said.

“Moreover, business expectations softened again during July, with UK firms the least optimistic about the growth outlook since January. Survey respondents cited worries about recruiting staff to meet business expansion plans and some suggested that escalating costs would hinder the recovery.”

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Service businesses were hit last month by a “pingdemic” of hundreds of thousands of workers who were told to self-isolate for 10 days after being identified as a close contact of someone who had tested positive for coronavirus. The daily number of new Covid cases has now fallen by half since a peak on July 17, and there are plans to relax self-isolation requirements in Scotland and England in the coming weeks.

Even so, many businesses are finding it difficult to recruit. Employment growth in the survey slowed to its weakest in three months.

Martin Beck, senior advisor to the EY Item Club, said the PMI readings indicated “decent” economic growth for the third quarter of this year.

However, of “arguably greater interest” were the data on costs and prices: “While the EY Item Club is cautious about these results, given the survey has tended to overstate price pressures in the past, inflation is likely to reach around 3.5 per cent on the CPI measure in late 2021,” he said.