UK recovery begins to falter amid shortage of workers and supplies

Britain’s economic recovery from the winter lockdown is showing signs of stalling amid shortages of workers and supplies due to the double whammy of Covid and Brexit, according to a Guardian analysis.

Despite the easing of most government pandemic restrictions, consumer caution appears to have crept higher in the past month as the Delta variant fuels a persistently high infection rate. In the meantime, UK businesses have come under pressure from global supply chain disruption and staff shortages.

Figures from the Bank of England show debit and credit card spending has fallen to 94% of its pre-pandemic level in recent weeks as the initial buzz from shops, pubs and restaurants reopening fades to a lower level. Footfall in town and city centres remains below pre-Covid levels, while retail sales unexpectedly dropped in July.

“The recovery has stopped in its track,” said James Smith, an economist at the Dutch bank ING. “The rise in self-isolation clearly had an effect on services spending, and the supply chain issues are having an impact on manufacturing.”

For more than a year, the Guardian has tracked the economic fallout from the pandemic on a monthly basis, following infection rates, eight key growth indicators and the level of the FTSE 100. Faced with the deepest global recession since the Great Depression, the Covid crisis watch also monitors Britain’s performance compared with other countries.

On the dashboard in the past month, there are bright spots as millions of workers come off furlough and unemployment continues to fall, confounding expectations that Covid would trigger the worst UK jobs crisis since the 1980s.

Government borrowing in July was down by about £10bn on the same month last year, in a reflection of the improving economic outlook. National output rose for the fifth month in a row in June, according to the latest figures, as the reopening of the economy from lockdown lifted consumer spending.

However, worrying signs are starting to show. Retail sales in Great Britain fell in July after a mini-boom a month earlier when England reached the final of the European Football Championship. Some of the decline was to be expected, as consumers switched from spending in supermarkets to eating and drinking in pubs, cafes and restaurants. However, analysts said the UK’s economic recovery from lockdown risked stalling.

“For now, the recovery has paused but we’re still probably looking at just about positive growth through the third quarter,” said Smith.

Countries around the world are struggling with shortages after the easing of pandemic restrictions in most advanced economies– as lingering disruption to international shipments, production stoppages and a lack of key components coincides with rising demand for goods and services.

Surveys of private sector activity show output growth fell at a steeper rate in the UK than in the US and the eurozone in August, as companies grappled with Brexit-related constraints, which exacerbated the most acute supply shortages in decades.

That came hot on the heels of the “pingdemic” absences a month earlier from workers needing to self-isolate, leading to the worst supply shortages in the manufacturing sector since the CBI lobby group started monitoring industry output in 1977. Retailers’ stock positions also fell to the worst level since records began in 1983.

In a reflection of border disruption in the UK, the CBI said the proportion of imported deliveries from suppliers fell at one of the fastest rates in the history of its retail industry tracker.

Official figures for July show the number of job vacancies in Britain passed 1m for the first time on record, reflecting difficulty among employers to hire workers, with firms offering bonuses to lure new recruits and beginning to raise starting salaries.

Torsten Bell, the chief executive of the Resolution Foundation, said there have been hopes throughout the pandemic that its legacy could be to help to increase low-paid workers’ wages and close regional gaps.

Writing in the Guardian, he said: “We’re now told that current hiring difficulties will suddenly deliver lots of bargaining power for low-paid workers – automatically leading to surging pay and better-quality work.

“[But] typical hourly wages advertised for cleaners and warehouse staff have increased by 20p and 11p respectively since March. Zero-hours contracts have not disappeared.”

Bell said the government could introduce new rights and enforcement in the jobs market to improve conditions for workers, scrap plans to cut the £20 a week uplift in universal credit benefits and increase funding for education.

“Silver linings to Covid-19 won’t solve our deep-seated economic problems; we have to,” he said.