19th October 2021

Lloyds research indicates UK hospitality businesses lead the pack as manufacturing output contracts
Trend

Tourism and recreation 62.2)–which includes pubs, hotels, restaurants, leisure facilities and travel agents – was the fastest growing UK sector monitored by the Lloyds Recovery Tracker for the first time since January 2012. A reading above 50 signals output is rising, while a reading below 50 indicates contraction.

The sector benefitted from strong consumer demand for large-scale events, such as concerts and music festivals, and the easing and simplification of international travel rules in England–which led to a rise in people booking holidays abroad and more tourists visiting the UK.

Transport operators also benefited from a loosening of travel restrictions and more people commuting, causing the sector’s output to rebound sharply month-on-month(55.9 in September vs 42.9 in August).

In addition, tourism and recreation became the only services sector to record the strongest monthly output growth since before the pandemic. 10 of the 14 UK sectors monitored by the Tracker saw output rise during September, up from nine in August. However, there was a contrasting picture for manufacturing sectors. The output of automotive(44.5) manufacturers and metals and mining 49.2) and household goods 46.6) producers contracted sharply during September due to materials and staff shortages. As a result, services businesses outperformed manufacturers by the greatest extent since January.

Meanwhile, the rate of input cost inflation during September was the second highest in the Tracker’s history, as energy prices spiked and demand for labour intensified. This led all 14 UK sectors monitored by the Tracker to raise their prices, with transport operators and manufacturers of chemicals, food and drink, industrial goods and metals and mining products recording the sharpest month-on-month increases.

Jeavon Lolay, Head of Economics and Market Insight, Lloyds Bank Commercial Banking, comments "While the number of sectors in growth mode increased last month, we are now firmly in an economic phase of recovery where big leaps in activity won’t happen every month. Tourism and recreation outpaced other sectors in September because it continues to benefit from relaxations in COVID-19 restrictions and resurgent consumer demand.

As the UK economy continues to inch towards its pre-pandemic peak, logistical challenges, higher energy prices and uncertainty relating to the path of the virus as we head into winter are key risks. Policymakers will need to tread carefully in order to safeguard the recovery, with important fiscal and monetary policy decisions due in the coming weeks and months."

Scott Barton, Managing Director, Corporate and Institutional Coverage, Lloyds Bank Commercial Banking, added "The dramatic developments in the energy market in recent weeks represent yet another challenge for UK businesses and households.

While manufacturers are bearing the brunt of supply chain pressures, most firms need to factor the likelihood of continued price pressure into their plans for months to come."

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