Boom time for hospitality, but manufacturing slumps as costs bite

Pubs, restaurants and hotels were the strongest performing part of the economy last month, but staffing and cost challenges took their toll on the manufacturing sector.

Jeavon Lolay, head of economics and market insight for Lloyds Bank Commercial Banking, warned policymakers will need to tread carefully to avoid a very difficult winter for businesses.

The latest Bank of Scotland UK recovery tracker report revealed hospitality businesses outpaced the rest of the UK economy for the first time in more than nine years during September.

The sector benefitted from strong consumer demand for large-scale events, such as concerts and music festivals, and the easing of international travel rules which led to a rise in people booking holidays abroad and more tourists visiting the UK.

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Transport operators also benefited from a loosening of travel restrictions and more people commuting, causing the sector’s output to rebound sharply month-on-month.

Overall, ten out of the 14 key sectors reported output growth in September, up from nine in August.

However, materials and staff shortages caused the output of key manufacturing sectors including automotive and household goods to contract.

All 14 sectors surveyed increased prices due to higher costs. The rate of input cost inflation during September was the second highest in the tracker’s history, as energy prices spiked and demand for labour intensified.

Jeavon Lolay, head of economics and market insight for Lloyds Bank Commercial Banking, said: “While the number of sectors in growth mode increased last month, we are now firmly in an economic phase of recovery where big leaps in activity won’t happen every month. Tourism and recreation outpaced other sectors in September because it continues to benefit from relaxations in Covid-19 restrictions and resurgent consumer demand.”

However, Lolay said the economy faces a number of key risks.

“As the UK economy continues to inch towards its pre-pandemic peak, logistical challenges, higher energy prices and uncertainty relating to the path of the virus as we head into winter are key risks. Policymakers will need to tread carefully in order to safeguard the recovery, with important fiscal and monetary policy decisions due in the coming weeks and months.”

A report earlier this week warned that Scotland’s economic recovery is under “significant threat” from the energy crisis, rising costs and staff shortages.

The latest quarterly survey from the Scottish Chambers of Commerce (SCC) points to strong growth across most sectors as firms continued to benefit from the easing of Covid restrictions and an economic rebound over the summer months.

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