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Private sector activity growth may peter out amid labour shortages, CBI warns

CBI says ongoing supply chain disruption may stymie growth.
CBI says ongoing supply chain disruption may stymie growth.

Activity across the UK private sector grew at the fastest pace since May
2014 during the three months to August, according to the CBI’s latest
Growth Indicator.

The composite measure – based on 521 responses to CBI surveys
conducted between July 27 and August 17 – saw firms report the fastest
growth in activity (+34%, up from 33% in July) in more than seven
years.

Growth drivers

Consumer services activity was a significant driver of growth, growing
at its fastest pace since February 2018 (+30%, up from +3%).

Distribution activity picked up further too (+53%, up from +48%), while business and
professional services growth was broadly stable (+32%, up from +34%).

Meanwhile, growth in activity within the manufacturing sector slowed
(+22%, down  from +37%).

Slowdown forecast

The pace of private sector activity growth is expected to ease over the next three months.

Distribution firms, in particular, anticipate a slower rate of growth
(+41%), the business & professional services sector expects a similar
rate (+30%), and manufacturers predict a slight acceleration (+26%).

Within consumer services, however, a fall in volumes is predicted over
the next three months, driven primarily by the hotels, restaurants and
bars sub-sector.

Supply chain disruption

CBI deputy chief economist Anna Leach said: “Strong cross-sector growth throughout the summer months is welcome, given the backdrop of supply chain disruption.

“However, there are several issues creating headaches for business, which must not be
ignored if we are to regain lost economic ground before the end of the
year.

“As Covid restrictions have lifted, evidence of labour shortages has
been growing – in some cases, these shortages are having a material
impact on operations.

It is unclear how long these labour and materials shortages will persist.”

Anna Leach, deputy chief economist, CBI.

“Meanwhile, disruption to global supply chains during the pandemic has led to sharp rises in material and shipping costs, adding further pressure.”

She added: “It is unclear how long these labour and materials shortages will
persist, given spare capacity still remains in the economy.

“Recent isolation rule changes will help ease some of the pressures on overall labour availability.

“For specific skilled occupations, like HGV drivers, a temporary extension of the shortage occupations list on immigration would help to further secure the UK’s economic recovery.”


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