UK business output falls for sixth consecutive month amid crisis in supply chain

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UK business output fell for the sixth consecutive month amid a supply chain crisis, rising energy prices and a shortage of workers, according to a closely watched survey of large employers.

UK business output hit its lowest level since March during the last nationwide coronavirus lockdown, according to accounting firm BDO. Its measurement went from 105.23 points in September to 103.35 points in October.

Businesses across the economy have tried to meet growing demand after coronavirus restrictions ended, but lingering supply issues have kept them from taking full advantage of the company’s openness. Rising costs, including rising energy prices, also slowed growth.

The manufacturing industry is particularly struggling to find the right materials, after months of disruption to production and delivery schedules caused by pandemic lockdowns. A persistent problem has been the shortage of computer chips, which has plagued carmakers in the UK and around the world.

BDO’s manufacturing index fell two points to 97, near the 95 mark, indicating a drop in output, while staff shortages led to slower growth in the service sector, which dominates the UK economy.

“Businesses are facing an increasingly difficult winter,” said Kaley Crossthwaite, BDO partner. “Between rising inflation and understaffing, 2022 could be a difficult year for companies that have been forced to prioritize short-term issues over long-term growth. At the same time, consumers are starting to see the impact of these shortages, with rising fuel and energy prices, which in turn can lead to reduced discretionary spending.

“In the final months of the year, businesses and consumers alike are hoping that the economy can regain some Christmas spirit in November and December and help us head into the New Year on a high note. “

Along with the supply difficulties, Britain is also facing rising inflation, causing a headache for the Bank of England as it tries to balance a desire to keep prices stable without stifling the economy. economic recovery. The official consumer price index, at 3.1% in September, is well above the Bank’s 2% target.

BDO’s measure of inflationary pressures felt by businesses also reached its highest level since April 2017, while separate data from NatWest Bank showed record inflation in input costs across all parts of the UK, at except for the West Midlands.

Some City traders appeared to have been taken by surprise last week when only two of nine members of the Bank’s monetary policy committee voted in favor of an interest rate hike, even as it raised its rates. inflation forecast at 5% at the start of 2022.

Bank Governor Andrew Bailey was forced on Friday to explicitly state that interest rates are likely to rise in the coming year. “We expect interest rates to rise and we are very clear,” he said, adding that they had only paused to wait for more specific signs of inflationary wage demands.


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Sebastian Burnside, chief economist at NatWest, said there were positive signs from the UK economy, including increased economic activity in every region. However, he warned that the inflation outlook was hurting business confidence.

“Signs of a pick-up in activity and job growth in many areas have been somewhat overshadowed by soaring costs facing businesses in all regions,” he said. . “Companies are finding it difficult to fill vacancies due to the tightening labor market, which not only slows down activity in some cases and contributes to increasing backlogs, but also raises wages.

“When you factor in soaring prices for energy, raw materials and transportation, this has created a cost environment unlike anything we’ve seen for at least two decades. Businesses in almost all regions and countries recorded unprecedented increases in operating expenses in October. “

However, data from NatWest and BDO suggests that companies remain broadly optimistic about their outlook for the coming year.

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