Staff shortages begin to affect growth

Official figures on Friday showed that the UK economy grew for the sixth month in a row in July, although the increase was much lower than in the previous month.

The lower-than-expected 0.1 per cent GDP rise - down from one per cent in June - was largely attributable to labour shortages after hundreds of thousands of workers were told by the NHS Test and Trace app to self-isolate after coming into contact with someone suffering from Covid-19.Britain's all-important services sector performed poorly with output in consumer-facing services falling for the first time since January after a significant drop in the retail sector. However, financial services, the IT sector and outdoor events industry all saw healthy rises, although legal services recorded a fall.Kitty Ussher, the recently-appointed chief economist at the Institute of Directors, said the fall in the legal, real estate and professional services sector reflected the partial ending of the stamp duty discount that prompted many people to hurry to complete sales by the end of June.And while industrial output grew by 1.2 per cent, mainly thanks to increases in the oil and gas sector, manufacturing was flat and construction output fell month-on-month by 1.6 per cent amid material shortages and rocketing costs.Martin Beck, senior economic adviser to the EY Item Club, which is sticking to its prediction of a seven per cent rise in GDP this year, said growth should have picked up in August.
"Lower infection numbers and less stringent self-isolation rules will have reduced the scale of virus-related disruption. And the boost from the end of domestic Covid-19 restrictions on July 19 should have become more apparent," he said."However, uncertainty about the virus, and the impact of labour and component shortages, mean risks are skewed to the downside.”Data from the Office for National Statistics (ONS) showed that total exports of goods, excluding precious metals, fell by around £300 million in July. While there was a healthy increase in sales to non-EU countries, exports to the EU declined by about £900 million."Self-isolation, coupled with loss of EU drivers in the workforce after Brexit, has caused a significant shortage of HGV drivers potentially attributing to falling exports," said the ONS.William Bain, head of trade policy at the British Chambers of Commerce (BCC), said the fall in exports to the EU in July was mainly due to a decrease in medicinal and pharmaceutical sales.He added: "Although there was evidence of an increase in exports to the EU in the second quarter of the year compared with the first, the most striking comparisons are with three years ago, before pandemic and Brexit factors took hold.“This provides a less favourable comparison, with EU imports £3 billion lower and exports to the EU £1.7 billion lower in July 2021 than in July 2018.“The data also points to the effects labour shortages, particularly among HGV drivers, are having on exports. We will be keeping a close eye on the next set of data, in October, to assess the impact this is having on food imports."Overall, Prof Jagjit Chadha, director of the National Institute of Economic and Social Research, told the BBC Radio 4's Today programme that the increase for July was "lower than most people expected".But he added: "The economy is slowly getting back to its pre-pandemic level. There were always going to be potholes along the way."And Dean Turner, economist at UBS Wealth Management, said he doubted that the latest ONS figures “will dent the Bank of England’s hawkish mood” and that he continued to expect an interest rate rise in the first half of next year.

Read more news and views from David Sapsted.

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