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Brexit and Covid add to UK inflationary pressure

Brexit and Covid add to UK inflationary pressure

2 min. 19.08.2021
Findings alarmed Bank of England policy makers who earlier this month said they may have to tighten monetary policy
Photo credit: AFP

Britain’s exit from the European Union and the pandemic are adding to inflationary pressures that are starting to slow the UK economic recovery, two business surveys show. 

The outlook was the weakest since January, in a poll of 1,500 companies by Lloyds Bank Plc and IHS Markit. A separate report Thursday by the South West Manufacturing Advisory Service showed almost all the 260 respondents reporting supply chain bottlenecks from a lack of staff and materials.

The findings indicate headwinds for the UK economy that are starting to push up prices, alarming Bank of England policy makers who earlier this month said they may have to tighten monetary policy. While industry is struggling to deliver all the goods ordered by the spurt of buying as lockdown eases, Brexit has dried up the supply of workers.

“We are seeing the first signs of supply chain struggles starting to hinder the upturn,” said Nick Golding, managing director of South West Manufacturing Advisory Service, a group working for government and local authorities to spur business in the region.

Lloyds said higher wages and materials costs led to an unprecedented rise in input costs. That confirmed a government report on Wednesday that showed a 9.9% surge in raw materials costs in July and the biggest jump in a decade for the price of goods leaving factory gates. 

Of the 14 industry sectors Lloyds and Markit track, 12 grew in July, the lowest number in four months. Food and drink makers said output declined at the sharpest pace in eight months, and health businesses recorded the first drop in six months.

Higher shipping costs resulting from friction at the border following Brexit and staff shortages added to costs, amplifying the shock from coronavirus lockdowns that reduced productive capacity.

Half of the firms are struggling to attract workers to fill jobs, the manufacturing advisory group said. Another report from the recruitment platform Indeed showed a majority of the unemployed are not looking for a job because they said they’re financially secure. Just one-in-10 of the workers on furlough are urgently seeking new positions ahead of the scheme’s end in September.

“Many businesses are facing growth constraints due to ongoing disruptions to supply chains and shortages of labour,” said Jeavon Lolay, head of Economics and Market Insight at Lloyds Bank Commercial Banking. “These pipeline issues represent early indicators of the potentially broader inflationary pressures to come.”

©2021 Bloomberg L.P.

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