By Ian McConnell

Business Editor

UK private-sector growth has slowed to a “crawl”, registering its weakest pace since the early-2021 lockdowns amid staff and material shortages and softer demand, a key survey reveals.

Meanwhile, official figures show a further decline in retail sales in Great Britain in June.

The flash PMI (purchasing managers’ index) composite output index from the Chartered Institute of Procurement & Supply and S&P Global has dropped to 52.8 this month on a seasonally adjusted basis. This is down from 53.7 in June, and signals the weakest expansion of combined private-sector services and manufacturing activity in the current 17-month run of growth. A reading of more than 50 is deemed to signal expansion.

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The survey points to another solid rise in private-sector employment this month, albeit signalling the least-sharp increase in 16 months with some companies reporting that worries about the outlook and labour shortages had led to non-replacement of leavers.

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Although the overall rate of input cost inflation eased significantly to its lowest for 10 months, “intense” pay pressures were flagged amid the UK’s cost-of-living crisis. Annual UK consumer prices index inflation hit 9.4% in June.

CIPS and S&P Global said: “Survey respondents often commented on lower commodity prices and a stabilisation in fuel costs, but there were still widespread reports citing intense salary pressures. Some firms noted that exchange rate depreciation against the US dollar had added to their purchasing costs during July.”

The survey flags an alleviation of cost pressures for raw materials, particularly metals.

However, CIPS and S&P Global said: “Service providers mostly noted that intense wage pressures due to shortages of staff and rising consumer price inflation had continued to push up their cost burdens.”

Assessing the overall employment picture, they added: “Higher levels of employment were driven by efforts to reduce backlogs and rebuild business capacity after cutbacks during the pandemic. However, some firms reported that shortages of candidates and concerns about the demand outlook had led to the non-replacement of leavers.”

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early 2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2% GDP (gross domestic product) growth.

“Forward-looking indicators suggest worse is to come. Manufacturing order books are now deteriorating for the first time in one-and-a-half years as inflows of new work are insufficient to keep workforces busy, which is usually a precursor to output and jobs being cut in coming months. Raw material buying has already slumped and hiring has slowed as companies reassess their requirements for the coming months in the face of worsening demand conditions.”

He added: “The concern is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months. To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history.”

UK base rates have been raised to 1.25 per cent, from 0.1% late last year, with further increases anticipated by economists and financial market players.

Seasonally adjusted figures published yesterday by the Office for National Statistics show retail sales volumes in Great Britain fell by 0.1 per cent month-on-month in June. This followed a drop of 0.8% in May. The May decline had been estimated last month at only 0.5%.

The non-store retailing category, predominantly online retailers, recorded a 3.7% month-on-month tumble in sales volumes in June. Clothing stores saw a 4.7% month-on-month decline in sales volumes. Automotive fuel sales volumes dropped by 4.3% in June, with the ONS noting retailers had suggested “the fall was linked to record-high petrol and diesel prices impacting the amount of fuel people were buying”.

Food sales volumes rose by 3.1% month-on-month in June, with the ONS declaring retailers had confirmed “increased sales were because of Queen’s Jubilee celebrations”.