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Supply Chain Crisis Causes Business Output Slump in UK


Supply Chain Crisis Causes Business Output Slump in UK

Studies show that UK business output is in its sixth month of decline due to a supply chain crisis, rising energy prices and a worker shortage. Output fell from 105.23 points in September to 103.35 points in October – the lowest level since the last coronavirus lockdown in March.

The whole business sector has been trying to meet rising demand since the coronavirus restrictions were lifted but struggling to take full advantage due to persistent supply problems and rising costs, such as the increase in the price of energy, which have also contributed to the output slump.

A particular shortage which has affected, not just the car manufacturing industry in the UK, but supply chains worldwide is a shortage of computer chips. This material shortage comes after months of disruption to production and delivery schedules due to lockdowns.

Alongside the supply chain crisis, the UK is also facing rising inflation. The Bank of England is caught between keeping prices stable without hindering economic recovery. The official consumer prices index, at 3.1% in September, is well above the Bank’s 2% target.

In a surprise move, only two of the Bank’s nine monetary policy committee members voted in favour of raising interest rates, even as it raised its forecasts for inflation to 5% in early 2022. The Bank’s governor, Andrew Bailey, was forced to explicitly say interest rates were likely to rise in the coming year. “We expect interest rates to rise and we are very clear,” he said, adding that they paused only to wait for more definite signs of inflationary wage demands.

Sebastian Burnside, NatWest’s chief economist, said there were some positive signs from the UK economy, including rising economic activity in every region. However, he warned that the inflation outlook was damaging business confidence.

“Signs of a pickup in activity and employment growth across many areas have been somewhat overshadowed by skyrocketing costs faced by businesses in all parts,” he said. “Businesses are having difficulty filling vacancies due to a tightening jobs market, which is not only holding back activity in some cases and contributing to rising backlogs of work but also pushing up wages.

“When factoring in the surging prices of energy, raw materials and transportation, this has resulted in a cost environment unlike anything we’ve seen for at least two decades. Firms in almost every region and nation recorded unprecedented increases in their operating expenses in October.”

However, the data suggested that businesses still remain optimistic about their prospects for the coming year overall.

If you are struggling to deal with the ongoing hurdles posed to business nationwide in 2021, it may be helpful to speak to an independent business recovery specialist. Contact Voscap today on 020 7769 6831 or email team@voscap.co.uk to speak to one of our business recovery specialists.

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