Number of UK sectors seeing retreating output more than doubles in July

The number of UK sectors reporting falling output last month reached levels not seen since lockdowns, and more than doubled from June, with many firms expected to implement price rises to help survive, according to a new report.

Bank of Scotland has revealed its latest UK Sector Tracker, which spans more than 1,500 private sector companies across 14 sectors, namely chemicals, metals and mining, automobile and auto parts, food and drink, household products, tourism and recreation, banks, property, healthcare, industrial goods, industrial services, transport, technology equipment, and software and services.

The lender – part of Lloyds Banking Group – said nine of these sectors saw their output contract in July, compared to four in June, and marking the highest number since January 2021.

It found that the transport sector, which includes airlines, hauliers and rail operators, was affected by national rail strikes and staff shortages, resulting in the fastest fall in activity of any sector monitored, with its reading for July coming in at 37.7. A reading above 50 indicates an overall increase compared to the previous month, and below 50 a decrease.

In addition, ten sectors reported falling demand, up from nine in June, and representing the highest number since June 2020. The bank said an unwinding of post-pandemic pent-up demand and increases in the cost of living had an impact on tourism and recreation (40.3), which includes pubs, hotels and leisure facilities.

However, the Tracker had better news regarding supply chain pressures and input cost inflation, with both easing in July. Of the seven manufacturing sub-sectors monitored by the survey, fewer supplier delivery delays were seen in five, (up from four in June), and reports of higher material prices fell to their lowest level since February 2021.

Bank of Scotland also said all but one of the 14 sectors reported a slower rise in input prices, up from seven in the prior month, while nine flagged a slower rise in prices charged to customers.

Bank of Scotland flags an unwinding of post-pandemic pent-up demand and increases in the cost of living hampering tourism and recreation (file image). Picture: Hollie Adams/AFP via Getty Images.

Pressures

Jeavon Lolay, head of economics and market insight at Lloyds Bank Corporate and Institutional Banking, said: “Rising inflationary pressures are currently dampening activity and demand across the economy. This includes a consumer-led slowdown reflecting the fall in real incomes and ongoing supply constraints and staff shortages.

“However, more positively, while price pressures at the moment remain intense, it was encouraging that 13 of the 14 sectors monitored by the UK Sector Tracker reported a slower increase in input prices in July. This suggests that some of the underlying drivers of economy-wide inflation are subsiding. But for now, many firms will have little choice but to increase prices to help protect their margins.”

Also commenting was Scott Barton, MD of Lloyds Bank Corporate and Institutional Banking, who said: “It’s welcome news to see improvements in supply chain momentum and moderating price pressures for some sectors. However, operating conditions remain challenging, particularly when it comes to demand.

Jeavon Lolay of banking group Lloyds said: 'Rising inflationary pressures are currently dampening activity and demand across the economy.' Picture: contributed.

“In this environment, strong working capital is critical. Without adequate liquidity, businesses will find it more difficult to weather further downturns in trading conditions. Managing how much money is tied-up in the day-to-day costs of doing business is a key way to help deliver the financial flexibility they’ll need.”