UK private sector growth continues despite supply chain crisis

·3-min read
Private sector growth continues despite supply chain crisis
Strong demand, combined with supply chain disruption, pushed inventories down to historic lows. Photo: Peter Cziborra/Reuters

Private sector activity grew at a firm pace in the three months to October, with business and professional services performing well, despite a slightly slower rate compared to the prior month.

According to the Confederation of British Industry’s (CBIs) latest growth indicator, activity has been growing at above average pace for six consecutive surveys as the UK battles an ongoing supply chain crisis and labour shortage.

The data showed that consumer services growth accelerated to 24% from 6%, while both manufacturing output and distribution sales rose from 15% and 16% to 32% and 29%, respectively. This was at broadly similar rates to last month.

The CBI said private sector activity is now expected to grow at a similar pace once again in the next three months, with a forecast of 27%.

Growth is expected to ease in business and professional services, and consumer services, but be offset by improved manufacturing and distribution.

Read more: Number of UK business closures surge as supply chain disruptions bite

The research however, did highlight that strong demand, combined with supply chain disruption, pushed inventories down to historic lows. In the distribution sector, stock levels in relation to expected demand reached a survey-record low for the seventh consecutive month in October.

“These issues continue to put upward pressure on prices, with expected price inflation for the quarter ahead remaining well above average at the composite level, including a survey record high for manufacturers,” the CBI said.

The composite measure was based on responses to surveys from 524 firms between 24 September and 14 October.

“Given the headwinds business has faced, achieving above average growth for the past six months shows real resilience in the UK economy,” Alpesh Paleja, CBI lead economist, said.

“By business and government continuing to work together – to unblock supply disruption and unlock investment — the UK can realise the high productivity, high skill, high wage economy that everyone wants.”

Read more: UK service sector growth slows amid staff shortages and supply chain disruption

News of supply chain disruptions first hit the headlines months ago, as companies suffered from a lack of raw material, such as semiconductors.

Fast forward to today and this has been exacerbated by a shortage of heavy goods vehicle (HGV) drivers for land side distribution, caused by the pandemic, Brexit and a surge in online shopping.

The Road Haulage Association (RHA) recently reported that there is a shortage of around 100,000 lorry drivers in the country, warning that the situation had reached a “crisis point” with critical supply chains failing.

It said that many drivers had gone back to their home countries, either due to uncertainty over new Brexit rules, or because of the UK's COVID-related lockdown restrictions.

The British government has since introduced 5,000 temporary visas for more HGV drivers amid a heavy backlog of people looking to take driving tests, but many in the sector are calling on more to be done.

“The chancellor made some important strides towards this in the Budget, by making business rates more bearable in the short term and introducing skills bootcamps," said Paleja.

“Sticking to R&D targets will be vital for crowding in investment that the UK sorely needs if we’re to compete globally, especially on decarbonisation opportunities.”

Watch: Economist: Supply chain crisis is here to stay for 'quite some time'

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