Rail strikes are slowing production in the UK transport sector

According to Lloyds Bank’s (LLOY.L) UK Sector Tracker, the number of sectors in the UK reporting a decline in output has hit an 18-month high, with the transport sector hit the hardest.

The transport sector, which includes airlines, carriers and rail operators, was hit by nationwide rail strikes and staff shortages, resulting in the fastest decline in activity of all monitored sectors, down to 37.7.

A Tracker reading above 50 indicates expansion, while a reading below 50 indicates contraction.

In nine of the 14 monitored sectors, production fell, the most since January 2021.

Additionally, 10 sectors reported a decline in demand, the highest number since June 2020.

The release of post-pandemic pent-up demand and rising costs of living weighed on tourism and leisure, with pubs, hotels and leisure facilities falling to 40.3.

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Jeavon Lolay, director of economics and market analysis at Lloyds Bank’s corporate and institutional banking division, said: “Growing inflationary pressures are currently dampening activity and demand across the economy. This includes a consumer-led slowdown, reflecting a decline in real incomes, and persistent supply constraints and staff shortages.

“However, on a more positive note, while price pressures remain intense at the moment, it is encouraging that 13 of the 14 sectors monitored by the UK Sector Tracker recorded slower input price growth in July. This suggests that some of the factors influencing inflation across the economy are declining. But for now, many companies will have no choice but to raise prices to protect their margins.”

All but one of the 14 sectors saw slower growth in input prices, compared with seven in June, while nine saw slower growth in prices charged to customers.

Of the seven manufacturing subsectors tracked by Tracker, five saw fewer delivery delays, down from four in June, and reports of higher input prices fell to their lowest level since February 2021.

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Scott Barton, managing director at Lloyds Bank Corporate and Institutional Banking, added: “It’s good news that we’re seeing supply chain dynamics improving and pricing pressures easing in some sectors. However, operating conditions remain challenging, particularly in terms of demand.

“In this environment, strong working capital is critical. Without adequate liquidity, it will be more difficult for businesses to weather a further deterioration in trading conditions. Managing the amount of money tied up in the day-to-day costs of running a business is a key way to give them the financial flexibility they will need.”

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