Bank of Scotland – more UK sectors report falling demand in August

Jeavon Lolay

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THE number of UK sectors reporting falls in demand increased for a fourth successive month in August, according to the latest Bank of Scotland UK Sector Tracker. 

Of the 14 sectors monitored by the Tracker, 11 saw demand, as represented by new orders, fall – one more than in July and the highest number since June 2020. Tourism and recreation (38.0 vs. 42.3 in July), which includes pubs, hotels, restaurants and leisure facilities, saw the fastest fall in demand, as consumers continued to rein in discretionary spending.

Each of the sectors which saw new orders contract also saw output decrease (11 out of 14 sectors in August vs. nine in July). Technology equipment manufacturers (58.1 on the Tracker’s measure of demand vs. 52.4 in July), providers of software services (57.8 vs. 58.0) and metals and mining firms (51.0 vs. 34.3) were the only sectors to see both demand and output grow.

Elsewhere, the Tracker showed that slower rises in material and logistics costs helped bring overall input cost inflation (76.6 vs. 78.4 in July) down to its slowest pace since September 2021. However, reports of energy and salary cost inflation remained close to record highs.

In addition, supply constraints continued to ease in August with companies reporting supplier shipping delays falling to their lowest level since October 2020. Meanwhile, manufacturing firms reported that input shortages dropped to their lowest level since November 2020, providing some relief to businesses.

Jeavon Lolay, Head of Economics and Market Insight at Lloyds Bank Corporate and Institutional Banking, said: “Our Tracker shows that the slowdown in activity spread to more sectors of the UK economy in August. More tellingly, all eleven sectors that saw output fall last month also saw demand falter.”

“While the government’s energy support package represents a crucial intervention for households and businesses, it is too early to tell whether this will turn the overall trend of the economy. However, it should have a marked impact on UK inflation, with the likely peak later this year now estimated to be closer to the current rate of 10%, rather than the much higher double-digit rates anticipated for next year.” 

“Looking ahead, firms will be paying close attention to the new Chancellor’s plans for emergency support during the energy price crisis and his policies to boost growth.”

Scott Barton, Managing Director, Lloyds Bank Corporate and Institutional Banking, said: “The cost of doing business remains extremely high, and firms continue to face into a significant period of uncertainty.”

“Reduced supply chain pressures is positive news for businesses, helping to alleviate one of the challenges they face and should allow them to free up some working capital that they may have otherwise tied up in stock.”

“This should allow businesses to benefit more from the flexibility and agility to react to whatever lies ahead. Healthy cashflow and strong working capital management will be key – ensuring that management teams can deploy funds where needed, when required, to capitalise on new opportunities and continue to trade through slower periods.”

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