Number of sectors showing fall in output reaches 18-month high
The number of UK sectors reporting falling output approached levels not seen since periods of lockdown, according to the latest Lloyds Bank UK Sector Tracker.
Nine of the 14 sectors monitored by the Tracker saw their output contract (vs. four in June) – the highest number since January 2021.
The transportation sector (37.7), which includes airlines, hauliers and rail operators, was impacted by national rail strikes and staff shortages, resulting in the fastest fall in activity of any sector monitored.
In addition, ten sectors reported falling demand (vs. nine in June), representing the highest number since June 2020. An unwinding of post-pandemic pent-up demand and increases in the cost of living impacted tourism and recreation (40.3), which includes pubs, hotels and leisure facilities. A reading on the Tracker above 50 indicates expansion, while a reading below 50 indicates contraction.
However, the Tracker also showed a more positive position on supply chain pressures and input cost inflation, with both easing in July. Of the seven manufacturing sub-sectors monitored by the Tracker, fewer supplier delivery delays were seen in 5, (up from 4 in June), and reports of higher material prices fell to their lowest level since February 2021.
All but one of the 14 sectors reported a slower rise in input prices, up from seven in June, while nine out of 14 sectors reported a slower rise in prices charged to customers.
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.”
Scott Barton, Managing Director, Lloyds Bank Corporate and Institutional Banking, 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.
“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.”