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Supply issues and staff shortages set the tone ahead of tomorrow’s Bank of England meeting

The IHS Markit flash UK composite output index came in at 71.7

Inflationary pressure on UK businesses hit record highs this month, while growth narrowed a bit from May’s all-time high, as Covid restrictions were eased.

This is according to the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI), which showed one of the most robust month-on-month increases in business activity in over 20 years.

The IHS Markit flash UK composite output index came in at 71.7, 1.2 shy of a record May.

IHS Markit said businesses have hired staff at “an unprecedent rate” in response to rapidly increasing workloads.

The survey also drew attention to the fact that input and output costs have reached new highs on supply-chain disruptions.

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Chris Williamson, chief business economist at IHS Markit, said: “Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound sharply from the first quarter’s decline.”

“There are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May’s record performance, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.”

Danni Hewson, AJ Bell financial analyst comments on today’s Flash PMI figures, added:

“The latest flash PMI figures set the tone ahead of tomorrow’s interest rate decision by the Bank of England.  Supply chains are still fraught, some materials are still hard to come by and delays are pushing some companies to try and buy ahead, at a premium.  All those cost pressures will work their way through and signal an uncomfortably bumpy period where inflation will continue on its upward trajectory.”

“Add in staffing shortages being felt by industries like hospitality and you have a recipe which will require businesses to weigh up whether it’s better to slim down provision or scale up wages.  Of course, the end of the furlough scheme could solve that issue.  No one really knows how many of those still being cushioned will return to their substantive posts or be looking for new ones.”

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