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UK business output has shrunk to its lowest level of growth since the reopening of the economy as staff shortages and supply chain disruptions battered productivity last month.

The closely-watched BDO Output Index suggests a slowdown across both manufacturing and services, falling more than five index points month-on-month to 100.69, effectively indicating average trend growth just months after the UK opened up.

The firm’s inflation index meanwhile jumped to a near ten-year high in the same month, as average prices continued to increase.

It is the latest in a series of data that suggest the UK recovery is slowing considerably, putting more pressure on Rishi Sunak ahead of the budget due at the end of the month.

Last week IHS Markit warned of a “severe loss of momentum” across the construction sector, often a bellwether for wider economic activity.

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The rise in energy prices, driven by higher wholesale natural gas costs, is being felt right across the economy.

“While a gradual deceleration in the pace of growth is to be expected as economies normalise after the pandemic, it is clear that acute labour shortages and supply chain disruption are weighing heavily on productivity,” said Kaley Crossthwaite, a partner at accountants BDO.

“Many businesses are caught between a rock and a hard place. Long-term planning for a post-pandemic and post-Brexit economy is crucial, but the significant challenges at their door make it increasingly difficult to focus beyond these short-term issues,” she continued.

The warning came just a week after Conservative party conference, during which PM Boris Johnson hailed the emergence of a new “high-skilled, high-wage” economy.

“Ultimately,” warned BDO partner Kaley Crossthwaite, “this could mean consumers end up paying more for less this winter.”

“Many businesses are caught between a rock and a hard place,” she said, acknowledging that long-term planning for a post-pandemic and post-Brexit economy, though crucial, was difficult for businesses dealing with the short-term issues.

Crossthwaite said: “The Chancellor’s autumn Budget will be watched closely later this month to see whether the government steps in to restore the confidence felt through the summer.”

The news follows a PwC report into consumer confidence which found that while consumer sentiment was still positive, and higher than in the period following the EU referendum, the energy crisis, inflation and driver shortage problems were starting to impact confidence in the run up to Christmas.

By Farah Ghouri

Source: City AM

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